Bill C-43 Receives Royal Assent

On December 16, 2014, Bill C-43, Economic Action Plan 2014 Act, No. 2, received royal assent. This Bill implements certain tax measures that were in the 2014 federal budget, as well as a few additional amendments to the Income Tax Act that were not previously announced in the budget. Some of the significant changes that will impact estate planning going forward are discussed below.

  • Testamentary trusts will no longer have access to graduated rates of taxation and instead will be subject to tax at the highest marginal tax rate. An exception will be made for “graduated rate estates” (essentially, most estates for the first 36 months) and “qualified disability trusts”. These proposals were first announced in the federal government’s 2013 budget, and were discussed in an earlier post.
  • There will be increased flexibility that will allow donation tax credits to be used by either the deceased (in the year of death or the prior year) or the estate (in the year the charitable gift is made, an earlier year or the following five years). We discussed these changes in an earlier post here.
  • The income or gain arising from the deemed disposition of the assets of an alter ego trust, spousal trust or joint spousal trust (which occurs on either the death of the settlor, spouse or surviving spouse, depending on the type of trust) will now be taxed in the deceased beneficiary’s terminal tax return, rather than in the trust. The trust and the deceased  beneficiary’s estate will be jointly and severally liable for the payment of the tax, but it is unclear whether the Canada Revenue Agency will assess the trust in all cases, or only where the estate is unable to pay the tax. These changes may be problematic where the deceased’s estate has insufficient assets to pay the tax liability (since the estate will have no right to the assets of the trust) or where the beneficiaries of the deceased’s estate are different than the beneficiaries of the trust (since the beneficiaries of the estate may be liable for the tax without getting any benefit from the assets in the trust).

The above changes will apply starting in the 2016 taxation year.

Court Orders a Letter to be Effective as the Last Will of the Deceased

WESA, the new estate legislation, contains a “dispensing power”, which allows a Court to order that a writing that does not meet the formal requirements of a Will is still effective as a Will.  This morning, Gordon Behan and I applied to Court for an order that a letter written by the deceased on the day of his death be declared effective as his Will.  The British Columbia Supreme Court granted that order.

This is noteworthy because the dispensing power (section 58 of WESA) is new to British Columbia.  Our August 2014 issue of Your Estate Matters addressed section 58 generally.  Despite being in effect since March 31, 2014, there are no published cases in British Columbia that address how and when the Court should exercise its dispensing power.  As a result, we looked to other provinces with similar legislation.  In particular, George v. Daily is a comprehensive Manitoba Court of Appeal decision that has been followed both in Nova Scotia and in New Brunswick.

The cases above indicate that the question to be answered is whether the writing expresses the fixed and final intention of the deceased to dispose of their assets after death.  In our case today, the Court held that the letter did express those intentions.

As can be seen from today’s decision, this new power given to our BC Courts will allow the Court more flexibility to give effect to documents that truly express the deceased’s fixed intentions but do not comply with formal Wills requirements.  As the Manitoba Court of Appeal said, “Relief from literal compliance with those requirements is an idea whose time has come.”

 

Will a Separate Residence Affect Your Spousal Status?

Those who have read Amy Mortimore’s earlier blog on spousal status may recall that spousal status is a “threshold question” in most estate litigation because being recognized as a “spouse” typically allows the person a claim or sometimes a greater claim on the estate.

Under WESA, a person is considered to be a spouse if the person was married to the deceased at the time of the death or if the person had lived with the deceased in a “marriage-like relationship” for at least 2 years at the time of the death.

The BC Supreme Court recently released its first decision under WESA with respect to the determination of a “marriage-like relationship”. In Re Richardson Estate, 2014 BCSC 2162, Philip Richardson (the “Deceased”) died leaving no will. Nancy Chen applied for a declaration that she was the Deceased’s spouse and the sole beneficiary of his estate pursuant to the intestacy rules under WESA. The Deceased’s brother, Stephen Richardson, disputed that Nancy lived in a “marriage-like relationship” with the Deceased.

The parties agreed that Nancy and the Deceased had a loving and intimate relationship for 15 years. However, other aspects of the relationship were in dispute, in particular, the fact that it involved two residences, one in Surrey and one on Gambier Island.  Nancy worked in Surrey and owned a home in Surrey, and the Deceased worked on Gambier Island and owned a home there.

In determining the case, the Court confirmed the approach taken by courts in the pre-WESA era. The Court confirmed that there are many indicators to be considered when determining a “marriage-like relationship”, and those indicators may be present in varying degrees and not all are necessary for the relationship to be found “marriage-like”.

The Court eventually ruled that Nancy was in a “marriage-like relationship” with the Deceased and therefore was a spouse of the Deceased. That decision was based on, among other evidence, the following:

  • The parties had a ceremony like a traditional Chinese wedding when they traveled to China;
  • Nancy cared for the Deceased’s elderly parents and his mother gave Nancy the wedding ring from her marriage;
  • The Deceased cared for Nancy during a significant health incident in 2011;
  • Nancy cooked and cleaned for the Deceased, and the Deceased made Nancy furniture;
  • They traveled together on a number of trips;
  • The Deceased contributed to the costs of raising Nancy’s sons, including school costs;
  • The Deceased named her as the beneficiary for his investment account and Nancy did the same for her investment account;
  • The Deceased and Nancy were known as a couple on Gambier Island;
  • The Deceased and Nancy traveled back and forth between Gambier Island and Surrey, with Nancy being more often on Gambier Island; and
  • The parties had an exclusive and intimate relationship in both locations and each contributed to the two residences.

With respect to the issue of two residences, the Court concluded that the couple structured their relationship so that they could work in two locations and look after their respective families in those locations.

The Court also noted that there were some minor issues (such as tax returns, on which the Deceased reported as “divorced”) that are inconsistent with a marriage-like relationship but overall the evidence supports the conclusion that Nancy and the Deceased had a marriage-like relationship.