Wills, Trusts & Estates Prof Blog

New Trust Reporting Rules

Beginning in 2021, new reporting rules will come into effect for most Canadian resident trusts. "The rules are intended to improve the collection of beneficial ownership information with respect to trusts and to help the CRA assess the tax liability for trusts and its beneficiaries. Trustees and their advisors should be aware of the rules summarized below."

1. New Filing Requirement 

The new filing requirement requires express trusts that are resident in Canada to file a T3 return, even if the trust does not have any income to report. Express trusts are created with explicit instructions by the settlor or testator. 

2. New Annual Information Reporting Requirement 

This requirement applies to all trusts that are required to file a T3 return and the trustees must provide the name, address, date of birth, and taxpayer ID number for all of the following persons in relation to the trust:

• settlor;
• all current trustees;
• all beneficiaries (including contingent beneficiaries); and,
• any person who has the ability (through the trust terms or a related agreement) to exert control over trustee decisions regarding the appointment of income or capital of the trust, such as a Protector.

3. Exceptions to the New Rules

• trusts in existence for less than three months at the end of 2021;
• trusts that hold assets with a total fair market value that does not exceed $50,000 throughout the year if the assets are comprised of cash, certain government debt obligations or listed securities;
• certain regulated trust accounts, such as a lawyer’s general trust account; 
• trusts that qualify as a registered charity or non-profit organization;
• mutual fund trusts, segregated funds and master trusts;
• graduated rate estates and qualified disability trusts;
• employee life and health trusts;
• certain government funded trusts;
• trusts under or governed by registered plans such as RRSPs, RESPS, RRIFs and TFSAs; and 
• cemetery care trusts and trusts governed by eligible funeral arrangements.

4. Penalties for Non-Compliance

Failure to file the T3 return or provide additional information will result in a penalty of $25 per day of delinquency, with a minimum penalty of $100 and a max penalty of $2,500. 

See Barbara Kimmitt, Marissa German and Allyson Carins-Walji, New Trust Reporting Rules, Bennett Jones (Canada), August 18, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Britney Spears Seeking Substantial Changes to Conservatorship

For over a decade, Britney Spears has lived in California under a court-approved conservatorship. The conservatorship is a "complex legal arrangement meant to oversee her personal well-being and finances." This conservatorship was spurred after Spears' infamous public breakdowns, which you are probably aware of. 

Spears' father, James Spears, is mostly in charge of Britney's affairs who has, for the most part, kept it out of public view. However, fans and family members have begun to worry about the control over Britney and her fortune which has led to the #FreeBritney movement. 

Despite her fans and family's worries, Britney had not made many comments about the arrangement until a couple of weeks ago when attorney Samuel D. Ingham III submitted a filing pushing for a change in the conservatorship. It appears that Britney believes that the conservatorship “must be changed substantially in order to reflect the major changes in her current lifestyle and her stated wishes.”

James Spears stepped away from his role as Britney's personal conservator and was replaced (temporarily) by Jodi Montgomery, a licensed professional conservator. Britney now asserts, strongly, that she does not want her father to resume his role as her personal conservator and would like Ms. Montgomery to take over the role permanently. 

Britney has also asserted that she wants a qualified corporate fiduciary appointed to serve in the role to take care of her financial affairs.

See Joe Coscarelli, Britney Spears Seeking Substantial Changes to Conservatorship, N.Y. Times, August 18, 2020.

Special thanks to Lewis Saret (Attorney, Washington, D.C.) for bringing this article to my attention.  

Gifting in uncertain markets

When volatility is high, many clients consider updating their gifting plans. However, "it is important to consider the opportunities that gifting can present in uncertain markets."

We have seen historically low rates in 2020 that have resulted from consistent market volatility. Also, the current gift tax exemption ($11.58 million for individuals and $23.16 million for married couples), allow wealthy clients to transfer significant wealth while "maximizing transfer tax savings."

"One way to maximize clients’ gifting plans in a volatile market is to gift assets that are undervalued as a result of market instability, but that would otherwise be expected to appreciate in value." This is a good strategy because you would report the gifted assets at the fair market value, which would likely be low in volatile market, but would then appreciate outside of your clients' estate for estate tax purposes. However, the success of this strategy is conditioned on whether the IRS accepts the reported values. This is a good estate planning option during uncertain times, like now. 

You can also estate plan with discounted values like the discount for lack of control (minority discount) and the discount for lack of marketability. "To take advantage of these and other valuation discounts, wealthy families may want to consider contributing undervalued assets to a closely held entity, such as a family limited liability company or family limited partnership."

Now is a great time to take advantage of the historically low interest rates and the substantial gift tax exemptions. 

See Rose Watson, Gifting in uncertain markets, Investment News, August 17, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Article on Fiduciary Law and the Law of Public Office: Suggestions for a Research Agenda

Ethan J. Leib and Andrew Kent recently published an article entitled, Fiduciary Law and the Law of Public Office: Suggestions for a Research Agenda, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.

A law of public office crystallized in Anglo-American law in the seventeenth and eighteenth centuries. This body of law — defined and enforced through a mix of oaths, statutes, criminal and civil case law, impeachments, and legislative investigations — imposed core duties on public officeholders: Officials needed to serve the public good, not their own private interests; were barred from acting ultra vires; could often be required to account to the public for their conduct in office; and needed to act with impartiality, honesty, and diligence. Office-holding came to be viewed as conditional, with officers removable for misdeeds. This law of public office reflected something that looks similar to modern fiduciary duties of loyalty and care.

In this Essay, we extend the historical record describing this law of public office, and make several new claims — historical and theoretical. First, there are strong reasons to suspect that the law of public office and private fiduciary duties developed together and influenced each other. During the critical centuries we explore, the duties of officeholders such as trustees, executors, and corporate directors were developing alongside the duties of officials such as tax collectors and government commissioners. Parliament and other actors repeatedly used the language of trust, trusteeship, guardianship, and account to define the law of public offices. And public law concerns about abuse of power and the need for honesty, fidelity, and altruism in service of others may have seeped from public law into private fiduciary law. Influential political theory about the monarchy and lesser magistrates was also using trust and related legal language to set forth a fiduciary conception of public office-holding; the theoretical developments in political theory not only drew from legal concepts but may have helped shape them, as well.

One Essay cannot decisively establish whether the similarities in language, concept, and timing were mere coincidence or rather evidence of some conscious co-development in the law of public offices, political theory, and fiduciary law. Proving (or disproving) actual causal relationships will need to be the work of the future. We conclude with some potential implications for our research agenda, should further work continue to confirm our findings here. Fiduciary political theorists should be less anxious about drawing from private law models — and private law fiduciary theorists might need to be less insistent on the purity of the private sphere. As we show, during the critical periods when fiduciary law and the law of public office come into their own, the public-private distinction wasn’t yet creating the divide that exists today. Our research agenda invites more mutual learning — both historically and for law and institutions today.

Article on For Whom Are Non-Profit Managers Trustees? The Contractual Revolution in Charity Governance

Jacob Hale Russel recently published an article entitled, For Whom Are Non-Profit Managers Trustees? The Contractual Revolution in Charity Governance, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.

This chapter chronicles an unnoticed aspect of the intellectual history of the “contractarian” paradigm, the descriptive claim that firms are best characterized as nexus of contracts. Although the paradigm’s rise in the 1980s in the corporate world is well known, little has been said about its success in rewriting both theory and doctrine in charitable and not-for-profit law. The contract paradigm has reshaped the questions that not-for-profit scholarship attempts to answers, and it is tightly linked to developments in not-for-profit doctrine and practice. Key examples include the growth of donor standing — the notion that not-for-profits have a fiduciary duty to their donors, and that donors may bring suit for breaches — and the growing obsession with “donor intent” throughout the not-for-profit sphere. I contrast contractarianism with an institutionalist “public trust” conception of charities, which was the prevailing intellectual paradigm for most of the 20th century.

Article on Judgment-Proofing Voluntary Sector Organisations from Liability in Tort

Phillip Morgan recently published an article entitled, Judgment-Proofing Voluntary Sector Organisations from Liability in Tort, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.

Voluntary sector organisations (VSOs) may use ordinary principles of law to protect themselves from tort liabilities by rendering themselves judgment-proof. There are two viable judgment-proofing systems available to VSOs: (1) charitable purpose trusts, and (2) group structures. Whilst these systems are not fool-proof, they offer significant protection from tort liabilities. However, judgment-proofing may come at a high price to the voluntary sector.

Pre-Election Estate Planning Moves for High-Net-Worth Families

You may be thinking, why are we already talking about Election Day? Well, as you know, time flies when you're having fun (or when you're in the midst of a pandemic) and the end of summer is quickly approaching. Therefore, it is important to consider the "intimate relationship between presidential politics, policy changes, and your estate planning. 

As you likely remember, prior to the 2016 presidential election, possible changes to the tax code were highly anticipated as former presidential candidate Hillary Clinton was threatening to raise the estate tax to 65% and limit estate-tax exemptions. These threats drove many into changing their estate plans in order to protect their assets before the potential laws could be implemented.

In order to avoid the risk and stress associated with last-minute changes to your estate plan, it is a good idea to begin taking the necessary steps to get your affairs in order.

For high-net-worth individuals, you currently have the ability to gift up to $11.58 million to another person free of transfer tax. This 2020 exemption is more than double what it was in 2016. As of now, this exemption is expected to "sunset" in 2026, but given the volatility of politics, it could happen sooner. 

Now is a perfect time to take advantage of the current laws in order to significantly reduce estate tax liability.

As there are a plethora of options and every family will need a plan tailored to fit their needs, you should consult with your estate planning attorney to ensure you take the proper steps when updating your estate plan.

Happy Planning!

See Alex Clendennen CFP, CWPA, Pre-Election Estate Planning Moves for High-Net-Worth Families, Kiplinger, August 16, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Court-ordered timelines must be respected, even in a pandemic: A discussion of Lima v Ventura (Estate of), 2020 ONSC 3278

Many aspects of the legal process have changed dramatically in the wake of COVID-19. However, one thing has remained intact, procedural timelines set out in court orders. 

In the Canadian case Lima v. Ventura (Estate of), an applicant attempted to extend a court-ordered deadline for his purchase pf the deceased home. However, the court denied the extension on the grounds that the appellant failed to present "persuasive evidence" in support of the request. The court made clear that the court-ordered deadlines "are to be respected."

Justice Emery emphasized that a moving party must present persuasive evidence that the pandemic (COVID-19) "presented circumstances and reasons that frustrated or prevented compliance with the order in question. 

The Court also laid out a list of factors to consider on motions related to delays due to COVID-19 that could justify altering a court-ordered deadline:

1. The steps not taken were necessary to carry out the terms of any order, and no other alternative to taking those steps would have served that purpose;
2. The steps were not taken because of the moving party’s inability to access business, professional or institutional offices physically or electronically because of COVID-19 protocols;
3. An extension of time would not be contrary to any law, or the rights of other person under an order of any court;
4. A reasonable explanation is provided for not taking the required steps, or why it was difficult or impossible to comply with the order for COVID-19 related reasons;
5. The moving party has made best efforts to otherwise comply with the order, and all other terms of the order that were not impeded by the COVID-19 protocols have been met; and
6. The moving party has acted in good faith.

In this case, appellant failed to provide the requisite evidence to meet the requirements of a court-ordered deadline extension. 

See Kathryn McCulloh, Court-ordered timelines must be respected, even in a pandemic: A discussion of Lima v Ventura (Estate of), 2020 ONSC 3278, Dentons Commercial Litigation Blog (Canada), August 20, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

The Need for No-Contact Signing and Notarization of Essential Legal Documents in the Covid-19 World

Due to the focus on social distancing and quarantining in the wake of COVID-19, essential legal documents that need to be witnessed and notarized in the physical presence of others have not been able to be executed. State and federal governments have largely ignored this issue as they have shifted their focus to controlling and preventing the spread of the virus. 

One major issue here is that individuals aged 60 and older are considered to be a high-risk group and many of those in that group may not have a will prepared. So, the individuals that are in this high-risk group are not able to effectively execute a will at a time when it is crucial to have one written. 

Wills are not the only essential legal documents that require another person to witness and/or notarize. Living wills (advanced health care directives) and power of attorneys often need to have a witness or notary of sound mind as well. Each state has its own protocol for these legal documents, so the requirements will differ from state-to-state. 

Historically, relevant case law opinions differ in what the exact meaning of presence is in the context of a will signing. State and federal governments can use this case law to develop a cause of action that allows individuals to produce wills that are enforceable while also keeping safety in mind.

There have already been steps taken to allow virtual and remote signings of wills. This a step in the right direction.

See Erika Katherine Johnson, MPH, PhD, & Prudence Fink Johnson, JD, LLM., The Need for No-Contact Signing and Notarization of Essential Legal Documents in the Covid-19 World, NAELA News Journal, May 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Teachers drafting wills – even obits – along with lesson plans

Whitney Reddick, 33, posted her own obituary on Facebook, however, she did not intend for it to go viral. 

Reddick, a special education teacher in Florida, was posted all over national headlines when her plea to Jacksonville's Duval County Public Schools and state officials to keep public education virtual during the COVID-19 pandemic was continuously shared around the country. 

“It is crazy,” Reddick said. “I’m seeing my name in publications I’ve never even heard of. Hands down, this is not my first vocal stance, or the first activism that I’ve taken on the issue. ... I had no expectation of that whatsoever.”

Reddick’s obituary of herself said things like “she left us while alone in isolation and on a ventilator at a Duval county hospital in Jacksonville, Florida”; and “even though she shouted from the rooftops ... she succumbed to the ignorance of those in power (and) returned to work.”

Due to the COVID-19 pandemic, many people, especially teachers, are having to think about their own mortality. Many of the teachers are beginning to draw up wills despite their young age. “I’m writing my will and I haven’t even paid off my student loans yet,” one tweet said. Another teacher tweeted: “Been feeling really off this week because I’m working on writing my will. I turned 27 last week, but I’m a teacher and I’m scared.”

Duval Teachers United in Jacksonville offers legal services including drafting wills at no cost. Teachers in Duval County have had conversations in private Facebook groups to make appointments to have wills drafted. 

See Emily Boch, Teachers drafting wills – even obits – along with lesson plans, USA Today, August 13, 2020.