Estate Planning in the COVID Era

Sean: Good afternoon everyone and welcome to another installment of our Gowling WLG webinar series. Today our topic is Estate Planning in the COVID Era. My name is Sean Sullivan and I am a partner in the Gowling Waterloo office. I practice in the area of estate litigation. Before I introduce our panel today just a few notes. Next slide.

This presentation is not intended as legal advice. Just a reminder that each case rises and falls on it's own facts and, of course, laws and regulations and rules may be different depending on the Province or jurisdiction that you are in. If you need specific advice you can contact us or a lawyer of your choice. Also a reminder that any COVID related information that is relayed today should be taken through the prism of the unprecedented times that we are living through, in that the situation is fluid, things may change and you should always make sure that your information is up to date. With that I'd like to introduce our panelists. First up is Rose Johnson, who's a partner in our Kitchener/Waterloo office, who practices in the area of estate planning. Rose is going to provide a summary of things you should consider when updating your Will. I will then speak on the specific topic of undue influence which is a ground upon which a Will, or other estate planning  arrangement could be set aside, and I'm going to provide a case study where that has taken place. Next, you will hear from Alex Del Bel Bulluz, an associate in our Hamilton office, practicing in the area of estate planning. Alex will be talking about powers of attorney and things you need to consider when preparing them. Next, Brian Cohen, a partner in our Toronto office, practicing in the area of estate planning, trusts and personal taxation, who'll be talking to you about probate planning and tax implications. And, finally, Christine Perry, in our Toronto office who's practice focuses on domestic and cross border tax and estate planning, who'll be talking about principal residence planning with US citizens and potential tax implications. Just a reminder as well that we will be doing another webinar in a couple of weeks, on May the 19^th, which will provide a deeper dive into mergers and acquisitions and the implications on estate planning. So, with that, I'll turn it over to Rose to get us started.

Rose: Thanks, Sean. As Sean mentioned I will be speaking to you about will planning in the COVID era. Has COVID changed the way we assist our clients in developing their estate plan? Not really. As the issues and considerations that were important pre-pandemic are just as important today. What has changed is the ability for you to now sign a Will virtually and while this virtual signing does give us another option for our clients, and in many circumstances it is the only option for some of our clients to sign their Wills because of health concerns, we choose it as our choice of last resort. Because it is a cumbersome and confusing process for all involved. First slide, please. First off let's discuss what is a Will. Simply put, it's a written document which expresses your wishes and intention regarding the transfer of your assets on your death. Now, while there a number of formalities that must be met, or satisfied, before a Will would be considered to be valid, at the end of the day, what you're saying is your just telling your family, friends and professional advisors who gets what, when do they get it and what conditions, if any, must be met before your heirs will inherit. Next slide.

With that I have selected four important, or what I would describe as foundational issues, that should be considered when updating or creating a will. The first being a selection of executors. An executor is an individual, or an institution, appointed by the testator, this is the individual who's making the Will, to carry out the terms of his or her Will. It's a serious responsibility. It's an important job, and for anyone who has ever had the pleasure of acting in this capacity, it is a thankless job. Next slide. Here are some of the factors that I work through with my clients when we are trying to determine who best to select as their executor. Some of these are probably quite obvious but, for example, age. As is obvious you typically want to select someone who is younger or the same age as you to take on this role. By area I mean where does your executor live? How easy will it be for him to deal with the estate's assets? How much will it cost for your estate to reimburse this executor to travel back and forth to deal with estate business? Non-resident executors also pose their own set of issues because there could be some unintended tax consequences to the estate, as well as a requirement that they may need to post security with the court before being permitted to deal with the estate. Aptitude. Depending on the complexity of your asset mix, and your family situation, does the person you are thinking about selecting make sense? Can they deal with your professional advisors and your beneficiaries? I often tell clients I do not need your executor be a lawyer, a banker or an accountant. What I do need is individuals who have common sense and are comfortable dealing with bankers, lawyers and accountants and taking advice from them. As the name implies, estate administration, there is a lot of administrative tasks. So if you would like to involve a friend or family member in this role, but would like to minimize or not burden them with the minutiae of all the tasks, you may want to consider appointing one of the trust companies to assist. As many of you know, each of Canada's large banks has its own trust division, where they ready and very qualified to act as executor or co-executor. Appetite. Given the workload involved I want you to consider whether the person has the time or the desire to take on the role. I always go to the situation, if you have a messy family situation, do you really want to put your executor in the middle of having to deal with disgruntled beneficiaries or family members? When I'm dealing with families that I say put the fun in dysfunctional I often, again, recommend the appointment of a corporate executor. They take out their objective, their objective in processing the estate, and have years of experience in dealing with difficult family situations. Amount. So how many executors do you need? One is fantastic because it allows for decisions to be made efficiently. If you appoint two, you need to be made aware that all decisions must be unanimous so, again, how well will these people work together, and with three or more it becomes, in my opinion, an administrative nightmare. Then finally, alternates. Obviously, they're a necessity in the event that your original executor is unable or unwilling to act in the role, for whatever reason. Again, corporate executors are an option because unlike you and me, they never die, they never become sick and they can deal with any complexity that the estate has. Next slide.

Just like with your executors, selecting a guardian has a number of many and varied issues. The person you are appointing in this role is going to be dealing with the most important and precious part of your life. So you do need to take time to make sure that they are the right person for that role. So, again, in speaking with clients I tend to look at a number of factors and quiz my client on this. I've listed some of the things there on the screen. Finances. Is the individual potentially able to take on any additional financial responsibility in raising your children? Will becoming a parent to one or more children have any impact on their mental or physical health? Will it impact their personal relationships? Either with spouse, partner or even their own children. Or, even, what will be the impact on their lifestyle? I am often asked as well should my executor be my guardian? And while that is an option of course, and may make sense because of the ease of access in dealing with the child's needs, financial. If they need to access any funds in trust that ease of access often makes my clients uneasy because they are worried and want to know who is looking out for the child's best interest, or financial interest, in this case. So we'll often appoint someone in each role. Whatever, for both the selection of your guardian and your executor, the most important thing you have to do is ask them. Ask them if they're prepared to take on this role and responsibility. Just because we insert their name in a document does not make it mandatory for them to take on the responsibility.

Family circumstances. Next slide, please. With 50%25 of first time marriages ending in divorce, and with that percentage only increasing with each successive relationship, or marriage, blended families are now the norm. It's very typical for me to be dealing with a second, third and sometimes fourth relationship, where the couple is bringing children from each of their prior relationships to the new relationships. Now, even seeing a lot of family situations where we're dealing with her children, his children and now our children. With blended families asset protection can be an important consideration. I really love my second husband, I do not have a second husband but, I really love my second husband and I want to take care of him and make sure he is well looked after but, at the end of the day, I also want my children to inherit something from my estate. In these types of situations clients will also consider using a spousal trust within the Will. That is basically a trust in which the surviving spouse is entitled to the income generated by the trust assets for the remainder of his or her life, and, on his her or death the capital, or whatever's remaining in the trust, can be distributed amongst your children or as you otherwise direct in your Will.

Finally, I like to talk about dependents. You need to identify who your dependents are. Does your 26 year old son who's now living in your basement rent free qualify as a dependent? Maybe. You need to understand that there is special protection for common law spouses, adult children, parents and siblings of the decease if, at the time of his or her death, the deceased was providing regular financial support to these individuals. If you fail to properly provide for these people in your planning a claim may be made against your estate. You need to identify them, as I said, as part of your planning. Next slide.

Testamentary trust. I've indicated for children but, they can be for a number of people, but in the majority of cases are for children. The use of a testamentary trust allows you to control the amount and the timing of the distribution of your assets to your heirs. With respect to how much of the estate to leave to your heirs, I often encourage my clients to base it on real dollars versus percentages, because I find it's not as concrete a number. I like to say to them, "If you were to have died yesterday, how much would you have wanted your children to receive?" When you figure out that number you can assess their ability to either manage the assets now or sometime in the future. As a follow one on that, whether they will get all of the assets in a lump sum, or staggered over a number of years. My experience has been that in situations where a child is inheriting several hundred thousands or millions of dollars, that parents and grandparents do look to a staggered distribution, so as to ensure that there are assets or funds available for the child as he or she matures.

This is just but a few of the issues that we as estate practitioners speak to our clients about when updating their estate plan. As a parting thought, I want to leave this with you, this pandemic has left all of us with more time to think about things. Including our own health and mortality. I would encourage you, and for you to encourage your clients, to be proactive and take time now to update, create or implement an estate plan, that makes sense for you, or for your clients, now. As opposed to being reactive and having to deal with a health crisis. Estate counsel, we are the last people you should be, or would want to be, dealing with when you are facing a health crisis. Thank you. And now I believe we're going to push it over to Sean who is going to talk about undue influence.

Sean: Thanks, Rose. Just as a further note, we understand that there may be questions and we're going to leave those until the very end so we can address them all at once. As I mentioned at the top of the presentation I will be discussing undue influence which is a particular ground to set aside a Will or other estate planning document. The opportunity for a person to exercise undue influence, in my view, only heightened during the COVID-19 pandemic because the testators, people making the Wills, are more isolated than they would otherwise be, and lawyers and other professional advisors for their clients do not have access to those clients and so it's more difficult to detect whether there is some type of undue influence occurring. It's more important than ever for family members, I think, to be on guard for the warning signs of undue influence that can be asserted on the most vulnerable in our society.

What is undue influence? An estate planning document may be invalidated on the basis of undue influence where it can be proven that the influencers suggestions and advice to somebody is so overpowering that, essentially, the document reflects the will of the influencer and not the deceased anymore. It's coercive. An assessment of undue influence doesn't require the court to identify specific coercion at the time that document was signed. You don't need to prove that somebody's being threatened. If they don't sign then something will happen to them. But on the other hand, the court will be looking at the surrounding circumstances that exist at the time that the Will was signed, that might demonstrate that the person is being unduly influenced. Next slide.

I've provided you here some indicators of undue influence that the courts have looked at. This is not an exhaustive list nor is it necessary to prove all of these items. But these are some of the things that courts, in the past, have looked at it in order to determine that there has been some form of undue influence. You'll see that it is extreme. It is coercive. It is a real demonstration that the voice of the testator isn't being heard, and in fact, it is the influencer who is in fact making the decisions. Next slide.

I thought it would be the easiest way to illustrate how you can prove undue influence is through a case that I was involved in last year. It was called Slover and Rellinger and it was a 5 week trial. We represented the plaintiff. It is really illustrative of the extreme situation where you can prove undue influence. Just to go through some of the facts of that case. Gertrude Rellinger was a 94 year old when she died. She had two children, Joan and Jim, and by all accounts Gertrude was characterized as being autocratic, strong willed, dominant and controlling. At the same time very skilled in the stock market and had amassed a significant fortune by the time she died. Gertrude's estate planning arrangements up until 2013 mandated a 50/50 split between Jim and Joan and that was pretty much consistent throughout her entire life. But things began to change in about 2013. At this time Gertrude had been in a home for about 10 years, and her primary caregiver, or personal care source was Joan. Jim was not as involved. But in beginning in 2013 Gertrude began making accusations, primarily against Joan, which were untrue. Things like Joan was stealing from her or Joan was not acting in her best interest. She was rude, she was abandoning her. At the same time she was feeling more favourably towards Jim. In May of 2013 she executed an estate planning, a new Will, which left 75%25 of her assets to Jim and 25%25 Joan. A marked difference from the previous estate planning arrangements. And then Jim became very much more visible in Gertrude's life. Within a few months he had arranged to have her transferred out of the home that she was living in, in Waterloo where she lived her entire life, to Toronto. He had replaced her financial and legal advisors with those he had retained. Over the course of the next year Gertrude was isolated from Joan, and any member of the family that was not connected with Jim, or was within his sphere of influence. During this time, over that course of next year, she executed a total of 19 estate planning arrangements, which taken together were designed to transfer her vast fortune into an investment account with Jim, which he would then hold and which he would then inherit upon her death. So we, as Joan's lawyers, want to take claim in order to challenge Gertrude's capacity and also to allege undue influence. We were successful in proving undue influence and in making that decision the court considered a number of different factors. Next slide.

The court found that Gertrude had suffered recent family conflict, having become estranged from Joan. The court found that Gertrude had become socially isolated from anybody other than those that were within Jim's family or in his sphere of influence. Her new estate planning arrangements were all prepared by lawyers chosen by Jim with what the court referred to as remarkable speed and were inconsistent with her previous Wills. Which had benefited both Jim and Joan. In fact all the new estate planning arrangements were prepared by Jim's lawyers. The court noted that in the last years of her life, Gertrude had paid significant sums of money to Jim, and finally after September 2013, after she was moved from Waterloo until she died 4 years later, anyone who had contact with her had to go through Jim. Gertrude was entirely dependent on Jim for management of her day to day needs and was increasingly dependent on him for her emotional needs. Inversely, Gertrude was isolated from Joan and Joan, in fact, did not see Gertrude again after March of 2014. It's interesting as well, in finding undue influence, the court did so without finding that Gertrude was in fact incapable. We were unsuccessful on that part of the case while we were successful in striking the 19 estate planning arrangements on the basis of undue influence. Which shows that while it may be more difficult it's not impossible to find undue influence even in the face of the lack of finding incapacity. When you talk about what constitutes undue influence, perhaps no single piece of evidence we had so demonstrably demonstrated undue influence, then the audio recording, which I refer to at the very end of this slide. The audio recording was obtained in August of 2013 when Gertrude left a voicemail message for her lawyer at the time. In that message she said, and I'm paraphrasing, "Please don't do anything without my son, Jim's, permission." and in the background you can hear Jim say, "Read it. Just read what's on the page." It is extremely rare that you ever have that type of demonstrative evidence that shows undue influence. But whenever anybody asks me, in a nutshell what is undue influence, I use that example. Importantly, the court found that Gertrude was the subject of undue influence so significant that the new estate planning documents did not express her mind and intention and were therefore set aside. Next slide.

In conclusion I just want to provide this caveat. That it is very difficult to prove undue influence. The courts do not lightly set aside an estate planning arrangement on the basis of undue influence unless it is very clear circumstances. Not all influence rises to the level of undue influence. That is something that some people need to take into consideration. But nevertheless, it's important for family members, legal and other professional advisors to be on guard during this timeframe, in particular, during this COVID outbreak, the warning signs of undue influence. Thank you. I think we're waiting on Alex, who's next.

Alex:  Sorry about that. As Sean mentioned at the beginning I'm going to be talking about powers of attorney. If we could go to my first slide. Generally, a power of attorney is a written document by which one person, the grantor, appoints another person, the attorney, to act as a substitute decision maker. There are two types of power of attorney. Power of attorney for property and power of attorney for personal care. If we could move on to the next slide. I will start with the power for attorney for personal care.

This document authorizes the person that you're appointing as your attorney to make your personal care decisions. A lot of people assume this means a sort of life or death, when to pull the plug decisions, but it actually does go pretty far beyond that. It includes decisions relating, not only to your health care, but to your nutrition, your shelter, your safety, the clothes that you'll wear and your hygiene. In addition to those decisions your attorney for personal care also has a duty to foster regular personal contact with your supportive family members and friends. To maintain those relationships and to get the input from those important people in your life. Now the power of attorney for personal care doesn't come into effect until you are actually incapable of making your own decisions. So for as long as you're able, health care providers will look to you to make decisions regarding your care. We can move on to the next slide, and the power of attorney for property.

This document authorizes the attorney that you're appointing to make decisions relating to your finances. So your attorney for property will essentially step into your shoes, and they're able to do anything that you can do, except for make a new Will or any other testamentary disposition. Other testamentary dispositions would include things like changing beneficiary designations on registered plans or life insurance policies. The attorney for property is expected to exercise reasonable care and skill in the performance of their duties, and they have an obligation to keep records of all transactions, and to be prepared to account for every transaction from the time they started acting as your attorney. But for people acting as an attorney for property it's really difficult to go back, potentially years back, to try to reconstruct the actions that you took and to justify those actions. It's really important to keep meticulous records from the time that you start acting. Now, generally, a continuing power of attorney comes into effect as soon as it's executed. So that means that your attorney doesn't have to wait for your incapacity in order to start acting on your behalf. If this is concerning to you there are ways that you can limit your attorney's ability to act. For example, you could make the effectiveness of your power of attorney conditional on a doctor certifying that you're incapable of managing your property. However, this will create delays when you do need someone to step in and manager your affairs. Generally, I tell clients that if you're concerned your attorney's going to act improperly or start acting before you want them to, you should be considering appointing someone else anyway. If we could move on to the next slide.

There are consequences of not having a power of attorney in place. So in the absence of a power of attorney for personal care the appointment of a substitute decision maker is governed by statute. Despite the fact that you haven't appointed anyone yourself, statute directs that others, medical professionals should look first to your spouse, then to an adult child or parent, then to your siblings. So there's a bit of hierarchy set out as to who will make your personal care decisions. Conversely, in the absence of a power of attorney for property, the appointment is not governed by statute. So, unfortunately, if you haven't appointed an attorney for property, the court generally will step in and appoint a guardian for you. This can be a costly process and it can take time. During that time there's no one managing your affairs and this the case, even if you're assets are held jointly, which is a bit of a misconception. For example, if you own your home jointly with your spouse, if you become incapable and your spouse needs to sell the home to finance your medical care, without a power of attorney for property your spouse likely will not be able to deal with your home without going to court. In either case, there is a good chance that the person who's going to end up acting as your attorney for property or for personal care, is not going to be the person that you would have chosen yourself. So it's important to turn your mind to these issues, as part of your overall estate plan, to make sure that you've addressed it and that you have something in place. Moving on to the next slide.

The decision of who you will appoint to act as your attorney for personal care and for property are very personal. You want to choose someone that you trust, and someone who knows you well enough, that they can ensure that your care and your finances will be managed the way that you would have managed them if you were still able to do so.

Some general considerations and they're similar to the considerations that Rose mentioned with respect to appointing an executor. Whether your attorney gets along with your family members. It makes things a lot easier if our attorney already has the trust and respect of the people that they'll be dealing with on your behalf. Whether they have the time to act. It is a big job that you are asking this person to take on and it will require a pretty big time commitment. And their age. So will they be able to do the job when you need them to do it? So if they're the same age as you, or older, that could be a bit of a concern. Now depending on the nature of your assets, and the dynamics of your family, you may also consider appointing a corporate trustee as your attorney for property. This would be an independent corporation who would step in and manage your assets for you. This is a good option for those with complex assets that don't want to put that burden on their loved ones, or for those whose families don't get along very well, as it allows a neutral and professional trustee to step in and to manage that complex estate and to make those difficult decisions. As Rose mentioned, most banks do have trust arms, and similarly to the way they're able to step in and act as an executor, they're able to take on the role of attorney for property as well. In terms of the number of attorneys, you can appoint as many as you would like, but it's important to remember that the people you're appointing are going to have to work together. If you are appointing more than one attorney you should turn your mind to whether you want your attorneys acting jointly or jointly and severally. Jointly and severally would mean that one attorney could act in the absence of the other. This can be convenient in that not everyone needs to be present at every meeting or sign every cheque. However, it does present an opportunity for one attorney to essentially go rogue and take actions without the knowledge, and potentially without the consent of their co-attorney. Finally, the location of your attorney for property is important as well. If your attorney for property is resident outside of Canada this can present, practically, some difficulties for them in terms of managing your affairs on a day to day basis. Further, if your attorney is resident in the United States, this can result in other implications. For example, a lot of Canadian investment advisors are not able to take instructions from US resident attorneys because of regulatory restrictions that are in place. Another example would be depending on the value of your financial accounts, that could trigger additional reporting requirements for a US resident attorney, simply because they have signing authority over those accounts. There are a lot of considerations that go into choosing an attorney for personal care and for property. The most important thing though, I would say, is that your choosing someone that you trust and that you're comfortable with and confident they can do the job properly. Moving on to my last slide.

I would just leave with the statement that powers of attorney are an important part of your overall estate plan and they're often overlooked when you're thinking about getting your Will done. You don't necessarily think of the incapacity planning that you have to do so that you're covered before your death. Just to keep that in mind when you're engaging your estate planning. With that, I will pass it over to Brian, who I believe is going to talk about probate planning.

Brian: Alright. So hopefully you can all see me. I see there's some questions coming in which is good and we'll deal with those at the end. So we're not ignoring those. One of the little things, just to go back to Rose's comment, just so you are aware she talked about Wills really quickly. Intestacy is always a risk and you should, if you don't have a Will, look into it currently because contrary to popular belief, just really quickly on intestacy you do not automatically have all of your assets flow to your spouse. In fact there's, depending on the number of kids and the value of the estate, you could end up with a split of assets going to spouse and children, yielding tax consequences as well as real world consequences that you probably can simply avoid just by getting a Will in place. So don't assume that it will all go to a surviving spouse if you pass away without a Will.

With that being said I'm going to go through some income tax and probate planning ideas. One of the key things in this conversation is that it's very important to remember that you shouldn't let tax wag the planning dog. Tax is very important but it's not the only piece. Probate is very important to deal with but it's one and half percent. People worry about probate planning because their friends have done it but it also begs the question, why aren't you worried about 26%25 capital gains tax rate? Or your 53 - 54%25 income tax rate? That being said we can start going through the slides. Probate planning hit the main stream in around 1998 where there was a case called Granovsky. Planners like myself were looking at what can we do to help our clients with significant wealth avoid, or mitigate, the probate tax liability of one and half percent. The problem was a lot of people were going out of their way to try to avoid this and through the process were actually triggering a litigation which cost a lot more than the one and half percent they were trying to step aside from. So what was the first one? Granovsky itself dealt with multiple Wills, and we'll get to those, but there are many other things that will drive estate planning and probate planning, but first you have to understand what is probate planning all about. For that you can look to the next slide and it's actually about something called estate administration tax. Next slide, please.

An estate administration tax is due when you file for a certificate of appointment of estate trustee. What does it cost? Well, it costs now, $15.00 per $1,000.00 over $50,000.00. So if you only have  $50,000.00 estate you don't have to pay any probate tax, or administration tax is the proper term in Ontario, rates vary from Province to Province. Alberta has a flat one. They don't even worry so much about this type of planning. Different Provinces, depending on the rates, drive different realities. Ontario has a higher rate. The question is, do you need to get the certificate? Do you actually have to apply and pay this probate tax? Because if you don't need to apply the whole question becomes meaningless. To simplify, what $15.00 per $1,000.00 really means, it means for every million dollars you have, you have $15,000.00 in probate tax. So for those of you who live in the Province of Ontario, sorry, the City of Toronto, and have a house, if you go by the prices the million dollar house is $15,000.00 in probate. You can deduct the mortgage but that's about all you can deduct from that calculation. It's a simple application, notwithstanding its simplicity, it is a court application and you need a lawyer to get it done and filed. There is another return that follows after, however, that's dealt with in today's slides. Next slide.

Do you need the certificate at all? What's the certificate do? It's really just you filed the Will with the court and you get back a document that has the Will behind it and a judgment on the front with a little red seal. The certificate itself is, I'd put a quote there taken from cases, is the judicial procedure by which a testamentary document is established to be a valid Will. Proving the Will to the satisfaction of the court. There's some other quotes there as well as to what it really is about. But you only need to obtain probate if someone is asking to prove that it is the real last Will and Testament. If no one is asking for that there's no reason for you to obtain probate. So what do you really need probate for? The most basic assets, or the usual culprits are, banker investment accounts, solely in the deceased's names, and we ...  in the deceased's name. Other assets you typically do not need probate for, which we'll get into later, and the easy way to get around them is just to designate your assets. So if an asset is designated it doesn't fall in your estate, you don't need probate. Next slide and go onto simple planning summary that we've already talked about. Next slide, please.

The simple way to avoid estate administration tax is to do one of these three things, are the most common. Designating your benefits, RRSP's, RRIF's, insurance, pensions, TFSA's. All of those have the ability to designate a survivor. If you have a designation the asset falls outside of the Will, it does so automatically, on death and it flows to that survivor. Once it has flowed to that survivor it is there's to use as they wish and it is not included in your estate tax calculation. So that's the estate administration tax calculation. That's the easiest. Additional ones that we're going to talk about, jointly held assets are transferred on death and those are jointly held assets with right of survivorship. The final one, which is a little more complicated, is you do a multiple Will plan where you have your corporate assets and they're dealt with in your corporate Will. The first one, going to the next slide, is your designated benefits. As I noted before the easiest thing you can do is sign on the RRSP, when you open the form, almost every investment institution will do this. You fill out the form, they see who is your beneficiary, should you pass, your designated beneficiary, and you fill it in. There is a risk with RRSP's and RRIF's that you should be aware of. The tax liability will often fall to the estate. But the benefit has flowed to somewhere else. If you have two children and you want to give one the RRSP and the other the balance of your estate, you have to be very careful. Because the kid who gets the RRSP will get it without having to worry about the tax liability and the other kid who's getting the estate will have to pay the tax liability. Which could cause a mismatch and fights that you didn't intend. So when you are planning your Will and planning your designation be very careful that it flows. Sometimes, going back to my first point, it makes sense to let the RRSP fall into the estate, pay the estate administration tax and have the assets be divided, as you want, to avoid any problems. Bottom line, designated benefits are very easy to work with but sometimes they come with risk that you'll want to avoid. With that we can go to the next slide, joint ownership.

This has become extremely popular over the last few years. There's a number of ways you can own assets. One of them is joint ownership, the other is tenants in common. Joint ownership usually comes with a right of survivorship which means on death it immediately flows to the survivor. Because it flows to the survivor, it doesn't follow the estate, you avoid paying estate administration tax. You'll see it on bank accounts, investment accounts and real property. Joint ownerships on real property, you often have clients come in and say, "I want to put my house in the name of me and my son so that when I die I don't probate on my house." The problem is if you want your principal residence exemption, and your son owns his own house already, you may have put that principal residence exemption at risk. So you may have saved one and a half percent on probate but now your kid, when he sells his house, is going to have to pay capital gains tax at 26%25 on the gain. So you've saved one and a half to have to pay 26 which is not good planning. If you're looking to do planning like that very important to speak to legal counsel. Next side, please.

With respect to bank accounts there's a lot of litigation out there right now where a parent puts the bank account in one child's name only, and there's three kids, and it says it's in joint name and then the parent passes away. The question arises whether or not that account, that is in joint ownership, belongs to the surviving child or be divided amongst all of the children. This has gone to the Supreme Court. The Supreme Court looked at the situation and said, "Where you have joint ownership of a bank account, and it is given to a child, or related minor basically is the test, then it is deemed that that child is owing the jointly owned asset on behalf of the estate. So if there's three kids, and mom puts the name of a bank account in joint ownership with only herself and one of the kids and mom should pass, that child receives the asset by right of survivorship but is holding it for the estate, is the initial presumption that can be disproved by documentation. But the problem is two-fold. Number one, if it forms part of mom's estate and that child is just holding it for mom, it is still subject for probate. So you have not solved that problem. Number two, the bigger problem is if that child gets in a fight with the other kids, you're in litigation as to who owns the asset and the savings are out the window, and estate litigation to do anything, for those of you on the call who have ever seen it, it's tens of thousands of dollars just to start a situation you don't want to be in. So if the intention is that you have the asset in joint ownership merely to avoid probate, you do a bare trust agreement beside it, and you need multiple Wills to make it work. If the intention is that that child is getting it, that it's an actual gift of the asset, you do a deed of gift, noting that actually occurred. So dot your i's, cross your t's, avoid litigation at the end. Moving on to the next slide.

Multiple Wills. Multiple Wills basically came about in that Granovsky situation, what I spoke of a few moments ago, the issue being that you do not have to pay estate administration tax on everything that you own. You only have to pay it on what you put in front of the court. So you do multiple Wills for a number of reasons depending on different assets. On the next slide, what you're going to see is, what you can put in a second Will and potentially a third Will to avoid having to pay estate administration tax on those assets. The key one are shares of privately held companies, related shareholder loans and receivables, it's a question of how far you push things before things go sideways, it's also about the personal effects, assets that are tested as power of appointment, some partnership interest can go in. So a lot can go in but you have to be very careful because, if one asset goes into the secondary estate that requires probate, the whole Will has to be probated and the whole plan goes out the window. There are a lot of errors that can occur, next slide please, with respect to your multiple Wills, so you have to be very careful. You have to make sure you retain a drafting solicitor who's familiar with these when they are being dealt with. Or you could end up with any one of these problems listed below. Making a Will not worth what you paid for it. Common problems are not matching where the tax gets paid from, doubling up on gifts because you put them in both Wills, not knowing which trustee has what authority if you have different trustees in different Wills. Codicils don't work well with multiple Wills. As you can see there's a whole bunch of problems.

I'd like to jump ahead. There's other plans that exist and we can answer those with questions if you have. But I'd really like to jump to prescribed rate loans and then bring this over to the American problems. Prescribed rate loans, you've been reading about them a little bit maybe if you follow in the papers. The Income Tax Act, unfortunately, is set up that you are taxed only as individuals, never as families. That's often been a bone of contention for many people, that you should tax as a family unit. Normally, if I lend my wife money and she earns income on it, I get taxed on that income but she gets to keep the money. That's what this example here says. If I give my spouse $100,000.00 and she earns $10,000.00 then I have that $10,000.00 tax on my hands. If I'm at the top rate, that means I'm going to pay about $5,300.00 in tax, but she keeps the $10,000.00. So that's not efficient. But if I loan it to my wife, and she pays interest on that loan at the prescribed rate, all of a sudden the tax result flips. So if you go to the next slide you can see this. The current is 2%25 for the loan but dropping to 1%25. The example now changes. If I lend it to my wife after July 1 at 1%25, and she pays that 1%25 within 30 days of the year end, what happens is I lend her the same $100,000.00, or in this case she is now lending me the $100,000.00, the husband earns $10,000.00 on that loaned amount, the same scenario, but if the loan is made after July 1^st, 2020, if the husband pays the wife the $1,000.00 in interest and the wife pays $520.00 on that amount, because she still has to pay tax on that interest, the husband keeps $9,000.00. So the $10,000.00 he earned less the $1,000.00 he paid to his wife, if he has no other income then you do not have to pay tax on that $9,000.00. If the wife earned that $10,000.00, as I noted before, it would be $5,200.00, now with this plan you're only paying $520.00. Surprisingly this is one of the areas the government has not gone after yet. It's been around for years. It's a plan that is tried and tested, and it's very easy to deal with this, unlike probate planning which can often be very complicated and this could potentially save you even more. If you have money. If you have 2%25 prescribed rate loans out there right now, there are things you can do to get it to the 1%25, but for that you should reach out to counsel. It's not simple but it can be taken care of. Next slide, please.

This slide is actually an introduction of topics that are going to be talked about. There's a lot to estate planning that can be done with freezes in this current market, with business succession and so forth, and how can you deal with that? Here's some of the questions that come up all the time and the more important thing, it's a sale really is what I'm doing now, but May 19^th from 1:00 to 2:00pm we're actually going to be going into these estate planning and business planning succession ideas, including whether or not you want to trigger gains today. Even though the tax rate will have to be paid today, may be the time today to recognize some gains. Or maybe to recognize some losses. When would you do that? Why would you pay that tax amount? For that you have to come back on the 19^th and we'll answer those questions. I apologize that that was very speedy but there was a lot of information and we'll get to your questions hopefully soon. I am going to pass it off to Christine who will talk about American issues.

Christine:         Thanks, Brian. At first blush this topic looks like it has nothing to do with COVID-19 but while I was sitting around in my house, 24/7, with my US citizen husband, I thought this stuff actually relates to COVID-19. We're running out of time so I am going to kind of speed through some of the slides. There is quite a bit of material in the slides so you can obviously did into that on your own. Next slide, please. The key issue here, and we'll delve into this, there's sort of two aspects to this issue. The key issue is that a Canadian tax payer who also holds US citizenship, or is otherwise a US person, is going to be subject to tax in two countries, Canada and the US, when they are selling their home. They're going to be reporting the gain, if there is any, from the sale of their home in Canada and the US and there are mechanisms in both countries to alleviate some of the burden of that tax. Of course, in Canada, we're quite familiar with the principal residence exemption and in the States, there's an analogist provision in the Internal Revenue Code called the main home exclusion. Next slide, please.

As I mentioned, the main home exclusion is similar to the principal residence exemption, in the sense that the tax policy purpose of the provision is to alleviate some of the burden of taxation of the principal residence which is, for many people, forms a substantial part of their net worth or their estate. However, it's important to note when you're doing planning for Canadians who fall into this category, that the main home exclusion is actually much more restrictive the principal residence exemption. There's two ways that it's more restrictive. One is in terms of how you actually qualify for the exclusion and the other is in terms of the amount that it's excluded. Next slide. I won't get into this in too much detail here but this is just for people's reference. We're quite familiar with the principal residence exemption and the conditions that we have to meet in order to be allowed the exemption. For most people that are really living in their home they're going to qualify for this. The main home exclusion does apply in many circumstances but it's important to know that it is more limited. So there's an ownership test, just like there is Canada, but we need to meet a 24 month test out of the past 5 years. There's a use test, basically the same, the time doesn't have to be continuous so you can break that up in any way that you need to. Then, of course importantly, you can not have sold another home within the past 2 years. If you are dealing with clients you want to check to make sure that they haven't disqualified themselves for that reason. Next slide. Perhaps even more importantly is the amount that's excluded. So let's assume that we do meet the requirements, principal residence exemption, of course the gain for each year that we've met the requirements and that we're designating the whole plus 1 bonus year there. The main home exclusion is limited. For a single tax payer only $250,000.00 of gain can be exempted. In the case of married tax payers, if they're filing jointly in the US, $500,000.00 can e excluded. In some hot markets like Toronto has been, and people that have owned their home for quite a long time, this exemption may not be sufficient to completely eliminate the gain. Next slide. That was my first point.

Insufficient exclusion under the main home provision. What happens? Well, you're going to have a US tax liability. A lot of people are counting on, for retirement or for their estate, that there's no tax associated with their principal residence, but they can be unpleasantly surprised to find out that they have a US tax liability, which is a really just a loss because there's no tax liability in Canada on the disposition of that asset. Of course, the tax payer may have foreign tax credits from other Canadian income, because of course we're subject to a higher rate of tax here in Canada. But if we look at the value of the house, the size of the gain that we're usually seeing, those foreign tax credits just simply aren't going to be sufficient to eliminate the problem. What are the other options for these US tax payers? Well, the first one would be die owning the home. So that's not ideal from so many different perspectives. Or, if you have a Canadian spouse, there may be a way that you can transfer ownership so that you actually, as the US person, don't own the home. Next slide.

The first option I mentioned, die while owning the home. Again, this isn't practical in many cases because people may have to downsize, or they may be moving to long term care or something like that. Again, it is an option but it may not be suitable for many people. Why does it work? It works because of the tension, or the difference, between the income tax system and the estate tax system. Just a bit of refresher, in Canada we're always looking, and only looking at income tax when we're transferring assets, or even when we're dying. In the United States we have two systems. One is actually an income tax system, similar to what we have in Canada, and the other is a very robust transfer tax system which is the estate tax generation, skipping tax, and gift tax. So you can actually move back and forth between the two systems. Here what happens is if you sell your house while you're alive you're in the income tax system, on the US side. If you died owning the home you're in the estate tax system. What that means is that if you are going to be subject to estate tax, that house would actually be an asset that would form part of your estate, you'd have to take the value into account. But there's no deemed disposition of that asset at death from an income tax perspective. So you basically get out of the gain altogether. That has, of course, a catchy name called the angel of death loophole, just to make something sound perhaps more exciting that it is. But what that means right now is that if you're a US person and you're estate is less than the exemption amount, and apologies, that should say 11.58 million. If your estate is less than that amount you get a step-up in basis of your property which passes to your heirs. You don't have an income tax on death, on the US side, and you actually won't have an estate tax either. Next slide. Option two, as I mentioned, in many cases you may have a US tax payer who's married to a Canadian tax payer. What you can do is when they're first looking to acquire the home, the Canadian person may consider taking that in their name, because of course they don't have to worry about US taxes. Or, often people have acquired the home usually jointly, that's the common method that you would see. You can actually transfer that property after it's already been held by the couple. Next slide. Again, here I'll just caution that although this is quote/unquote standard planning, there are a number of issues for consideration, so you really need to go through this carefully. Everyone's situation is going to be a little bit different. High level, from a Canadian tax perspective, generally this can happen on a tax deferred basis. From a US perspective, again, we talked about that distinction between income tax and transfer tax, here by making a gift, gratuitous transfer to our spouse, for love and affection obviously, we're going to drop into that transfer tax system. It is a taxable gift. So you want to be cautious about that, but if we remember that 11.58 million can be used to shelter transfers during life, or at death. So in this case we would look to make sure that someone could shelter that transfer, and that would be done through consulting with their accountant, just to make sure that they do have the room to facilitate the transfer. Of course you always want to think about family law issues. Always checking to make sure that whether the clients have a domestic contract, and explaining to them how this will impact them, but it's a great solution for couples in terms of how they can structure their asset holdings to eliminate this problem all together. Next slide.

Again, we'll just finish up by looking at one final issue. We do all this planning, fantastic. The Canadian spouse owns the property. Now the property isn't sold. The Canadian spouse passes away and it's highly possible if the US spouse is the surviving spouse, the home may somehow revert back to that. They might think we're kind of back where we started anyway. We may have a higher basis, of course, because our Canadian spouse has passed away but we still, at the end of the day, have this large asset in the hands of the US person. What can we do? There's lots of planning options. We could talk about that probably for another hour, which we won't do, but there's going to be three things that are driving how this is structured. One is going to be Canadian income tax, which is generally pretty straightforward. There's going to be US income tax, meaning what if we are going to sell the property before the surviving spouse passes away? And what is the basis of that property going to be if we have US children that are inheriting that property? Finally, US estate tax, we're going to think about what are the assets of that US surviving spouse and are they going to have US estate tax at their death, because of course the home may contribute or add to that tax burden. Next slide.

I've gone through the three options here in the slides. We won't have time to get through all of them in detail but you're certainly welcome to look through those and let us know if you have any questions. You could leave the home, outright, to the US spouse. Of course, you have a similar problem as you did before because the gain, at least from that point on, is going to be taxable to the US spouse if they sell the home. When they die, of course, we're back in the estate tax realm. If there is no estate tax that could actually be quite an effective strategy. Next slide. Option two, you could leave the home to a grantor trust for the US spouse. You may be doing this because of some kind of Canadian planning that is directing you to use a spousal trust. Here, this is going to be very similar in nature to just personal ownership for the US spouse. Next slide. Finally, you could use a non-grantor trust for the US spouse. There may be reasons for doing this. That could be for general estate planning reasons, and of course, there could be estate tax reasons. If estate tax is the compelling consideration you want to make sure that that asset is not going to be included in the estate of the surviving spouse. This is a complicated because, of course, on the income tax side we have some concerns. Number one, when the home is sold that can create some income tax complexities, either for that spouse or for their beneficiaries, and finally, when the person passes away, even though for Canadian purposes we're used to getting a basis step-up on that property, that's not always the case on the US side. Again, before you implement any of this planning, you want to make sure that your considering each of these considerations, the US and Canadian income tax and the estate tax, the client's personal situation, and then also looking at how you can exit out of any of these strategies. A lot of it will depend on the trustee actually just maintaining some flexibility and understanding that the issue exists. That's it for me so I'll turn it back over to Sean.

Sean: And I will turn it over to Rose, who I think is going to handle the question and answer session. Thanks, Christine.

Rose: And I would love to do that. l can't access my video but anyway, there we go. Thank you. We have a number of very good questions that have come up. It's 1:04 now and if you need to leave the webinar, thank you very much for attending. If you have, however, would like to stay on for 5 or 10 more minute we're happy to stay on and answer some of the questions that have been posed. We have 23, in fact. For any questions where we do have an email address we will send you an answer after the webinar. So with that I'll throw out the first question to the planners on the panel. If at that time you were meeting with your client your concern that there may be undue influence, some or all red flags are present, but the client insists they want the Will to be drafted as instructed, should the lawyer proceed or refuse the retainer? I'll throw that out to Brian, Christine

Brian: I can. So, for the lawyers on the call, if you're referring to that situation, the general response to that is you proceed to draft the Will and have it executed and do memos on memos to file as to why you had your concerns and what the concern was and what you did to alleviate it. If there was someone in the room, the son demanded to stay and refused to leave, you put that down. You speak to them. You say, "This is a concern." You explain why it's a concern. Notes to file but at the end of the day you proceed and complete the retainer.

Rose: Okay. Thank you, Brian. This could be for Alex and/or Sean. Can the POA be challenged by a relative to the testator? I guess of the grantor, in this case, because it's a power of attorney.

Sean: Alex, do you want to take that?

Alex:  There has to be a reason that it's being challenged. So it can be challenged by anyone who would have reason to believe either that the grantor was unduly influenced in granting it. Or if they're acting improperly. If there's some evidence of improper management of the person's assets, then yes, it could be challenged and it would go through someone like Sean and go through the court process.

Rose: Thanks, Alex. Next question I have and I can answer it. Sorry. It just disappeared on me. How can you refuse being appointed an executor of a Will? As I mentioned in my presentation, you cannot be forced to act as an executor, even though you may be named in the document. If you are ever notified that the individual has passed away and you are to act in this capacity, what you would do is you would renounce, immediately before taking any action, and by doing so you are no longer acting in that capacity.

There are some questions here which are very fact specific and fortunately, those individuals, we do have their email. Here's another one. Many banks or institutions still have old forms of powers of attorney which do not provide for proper witnessing by two witnesses. Is a bank POA signed by the grantor and witnessed by the grantee, only, valid at all?

Brian: Do you want me to?

Alex:  Sure, go ahead.

Brian: This is a loaded question. It depends on what the power of attorney is for? Number one, bank powers of attorney can be concerning if they have revocational language in them. They can be revoking everything you did with your counsel, if it's a generic language. I understand a lot of banks have now updated their forms. Number two, if there's only one witness, unless it is pre-1992, if I recall correctly which hopefully it's not, hopefully it's something newer than that, you need two witnesses to make a power of attorney valid and they have to be there at the same time, much like the Will requirements out there. That document, POA, would not be valid under the Substitute Decisions Act. However, there are documents in place for something that is called a power of attorney substitute with an interest, which is way beyond the concept of this call, which is under the old Powers of Attorney Act which only required one witness, and would still be valid. So it depends on what that power of attorney is for with the bank but it should be two witnesses, and ideally, you're working with one of them by counsel, and you can provide that to the bank as needed. It should all work together is the answer to that.

Rose: Great. And, Brian, still while you're on the question is regarding an investment account. Is there a requirement for the investment firm to keep joint with right of survivorship agreement with the wet signature on file or is a scanned copy of the original enough?

Brian: Every institution is a little bit different. A lot of them haven't gone to scan signatures whereas others are still requiring wet. Unless the nature of the documentation now, almost all of those will fall under the electronic commerce legislation of the relevant jurisdiction. Very few documents today require a wet signature, one of them being Wills and powers of attorneys still require, notwithstanding what Rose said about video conferencing to sign during COVID, but a scanned copy will often be enough. But they'll probably want the original sent to the after the fact.

Rose: Okay. Sorry. Okay. What's the best way to handle properties in multiple countries, regions. Example, Canada, Hong Kong SAR, China (hereinafter referred to as "Hong Kong") and China. Should there be multiple Wills, one in each region? Or would one Will in Canada be sufficient?

Brian: So, it seems to be on my desk again, because I had mentioned multiple Wills. One for each region, ideally, is the ideal. Do not do them piecemeal but you do the Hong Kong Will today, the Canadian Will next week and the US Will the week after because more than likely you have revocational language in each so you'll have revoked all of those. You should do them all at the same time with counsel in each jurisdiction in place. The reasons are many. The simplest is probate in different jurisdictions can be difficult. One of the worse places to probate is not Hong Kong, it's Florida. So Florida condos, it's often a very good idea just to get a Florida Will done just for that condo, if you own that, so that you can deal with the Florida probate separate and apart from everything else. So multiple Wills for each jurisdiction.

Rose: Okay. I guess we'll make this the last question. We'll have Sean answer something. People are curious to know how much Joan received under the litigation and what were the costs awards in the Rellinger case?

Sean: There's only so much I'm permitted to answer, actually, but I can say that the May 2013 Will was upheld so that it went back to a 75/25 split. We were unsuccessful in knocking out May 201 Will but everything after that was knocked out. As for costs, the court did not make an award of costs and left that issue for the parties to address. Unfortunately, I'm not at liberty to discuss that.

Rose: Thanks. So thank you to everyone on the panel for taking time to participate in today's webinar and thank you to all of our attendees for taking time out of your busy schedules to hopefully learn more about estate planning in the COVID era. As I said, any questions that we have where we have an email address, we will reach out to that individual with a response. Otherwise, if you wish to contact any of us individually, feel free to do so. If we can be of further assistance, or you have any specific questions in our area, do not hesitate to reach out to us. With that I will let us sign us off and thanks to all the attendees, again.