Proposed Changes Impacting Charitable Giving

The government tabled a detailed Notice of Ways and Means Motion today to implement a number of changes announced in Budget 2014, as well as other measures. One of these changes will provide greater flexibility with respect to charitable gifts that are made in a will.

Currently, any charitable gifts in an individual’s will are deemed to have been made by the individual immediately before they died and the donation tax credits that arise from the charitable gift can be used in the deceased’s terminal tax return or the immediately prior tax return. It is not possible for any excess credits to be used by the estate to offset any income that may be earned by the estate.

The proposed changes will provide additional flexibility so that the donation tax credits can be used by the deceased, or by the deceased’s estate. The draft legislation provides that for deaths that occur on or after January 1, 2016, the estate will be deemed to have made the charitable gift at the time the property is transferred to the charity, and the donation tax credit can be used by:

  • the estate in the taxation year in which the gift is made;
  • the estate in an earlier taxation year;
  • the estate in the five subsequent taxation years;
  • the deceased in the year of death; or
  • the deceased in the year prior to the year of death;

In order to benefit from this increased flexibility, the charitable gift must be transferred to the charity within 36 months of the individual’s death, which may be difficult in situations where there is ongoing litigation or other issues that delay the administration of the estate.

Overall, these proposed changes are positive as they will provide more flexibility for charitable gift planning in the future.

Should you appoint more than one person under an Enduring Power of Attorney?

When you appoint someone as your attorney under an enduring power of attorney, you give them the power to take care of your financial and legal matters even if you subsequently become incapacitated. This might include paying your bills and expenses, depositing and withdrawing funds from your bank account, making or changing investments, and even handling the sale of your house if needed.

Some people appoint more than one person as their attorney. Appointing two or more attorneys has its benefits as well as challenges. The benefits include the ability for one to act when the other is absent or unavailable, and the opportunity for the attorneys to monitor each other’s conduct. The challenges are illustrated in a recent BC Supreme Court decision in Sommerville v. Sommerville, 2014 BCSC 1848.

Mr. Sommerville appointed his second wife and one of his daughters from his previous marriage as his attorneys under an enduring power of attorney. He gave them the power to act separately in all circumstances.

Mr. Sommerville and his second wife had married late in life. During the marriage, they had maintained most of their assets separately with a few joint assets. Since Mr. Sommerville had the higher income, the couple had agreed that Mr. Sommerville would deposit his pensions to a joint bank account for their personal and living expenses. The wife also deposited a small portion of her pensions to the same joint account. Throughout the marriage, the wife managed the family’s finances.

When Mr. Sommerville’s physical and mental capacity declined to the point of requiring long term care, the daughter, without consulting her stepmother, directed most of Mr. Sommerville’s pensions to be paid into a new bank account in her name as his attorney. The daughter was concerned that her father would need his pension income to pay his future care costs. This action caused a dispute to arise between the attorneys.

Under subsection 18(5) of the Power of Attorney Act, two or more attorneys with the same area of authority must act unanimously in exercising the authority unless the adult giving the power describes the circumstances in which the attorneys need not act unanimously, or sets out how a conflict between them is to be resolved. However, Mr. Sommerville had appointed his wife and his daughter with the same area of authority and permitted them to act separately with no conditions.

The BC Supreme Court considered the statutory duties of an attorney, which are specified in Section 19 of the Power of Attorney Act, and in particular, the duty that an attorney must act in the adult’s best interests, taking into consideration the adult’s current wishes, known wishes, beliefs and values when the attorney manages and makes decisions about the adult’s financial affairs.

The Court then examined the evidence of Mr. Sommerville’s wishes, beliefs and values as he had expressed or displayed them while he was mentally capable. The Court found that Mr. Sommerville would have wished for his attorneys to work together and consult each other before making decisions about his financial affairs, and that the daughter’s action deprived the wife of her ability to manage the family finances under a long-standing arrangement.

In the end, the Court directed that all of Mr. Sommerville’s pensions should be deposited into a bank account in the joint names of both attorneys. The wife would continue to manage Mr. Sommerville’s finances and would be responsible for running the joint bank account, and the daughter would be able to monitor the use of the account. In addition, the Court directed the wife to give priority to Mr. Sommerville’s monthly personal and health care expenses, but authorized her to use any excess pension funds not required for his care expenses for her own expenses.

The Sommerville case illustrates the challenges that can arise when appointing more than one attorney without specifying the scope of their respective authorities and how to deal with conflicts. Great care should be taken in choosing your attorneys and in setting out their roles.

When are Couples Considered “Spouses”?

In estate litigation, the Court is often asked to determine whether or not a plaintiff was the “spouse” of the deceased.  We often refer to this as the “threshold question”, because being recognized as a “spouse” typically allows the plaintiff a greater claim on the estate.  While the status of a legally married spouse is usually easier to determine, WESA and other estate related law includes in the definition of “spouse” someone who has lived with the deceased in a “marriage-like relationship” for at least two years.

“Marriage-like relationships” come in many different forms.  Our Courts are clear that there is no set one set of criteria to be met, but rather, many possible indicators.  The bottom line is that each couple’s spousal status must be reviewed in the context of their own unique facts.

In a recent decision, the British Columbia Supreme Court considered, first, whether the plaintiff, Ms. McFarlane, was the “spouse” of the deceased, Mr. Goodburn, and second, if so, whether Mr. Goodburn’s will ought to be varied.

Ms. McFarlane and Mr. Goodburn had been family friends for many years. Following the deaths of their respective spouses, Mr. Goodburn moved into Ms. McFarlane’s home and they began an intimate relationship. During the course of their eleven-year relationship, the couple socialized together, vacationed together and, according to Ms. McFarlane, regarded themselves as husband and wife despite maintaining separate finances. Mr. Goodburn suffered from various health conditions and relied on Ms. McFarlane for care and assistance until his death. In his will, he left nothing to Ms. McFarlane. Ms. McFarlane argued that the will ought to be varied in her favour as it failed to make adequate provision for her maintenance.

 To determine whether the will ought to be varied, the Court first had to consider whether she was Mr. Goodburn’s spouse. The Court answered this question in the affirmative based on the following objective and subjective factors:

  • The couple shared a home and a bed;
  • Ms. McFarlane provided care and support to Mr. Goodburn to the degree and in the manner of someone who was more than simply a friend;
  • In their social interactions with friends and family, the couple would have appeared to function as a unit; and
  • Each was likely committed to life-long financial and moral support of the other.

 The Court further explained that for a relationship to be “conjugal”, couples are not required to fit precisely the traditional marital model.  The Court therefore found that Ms. McFarlane was in fact a spouse, and ordered that the will be varied to provide for her.

 Thank you to Alexandra Andrisoi, articled student, for her assistance in preparing this post.