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Wills | Estates | Trusts

A F O L A B I:
Our Wills and Estates Law Blog

Someone left you a house? Why you should transfer the title from the estate to yourself.

Losing a family member can be sad, stressful, and difficult.

To add to it all, the process of settling the estate of the deceased can be frustrating and complicated, and can place a strain on familial relationships. This is even more so if real estate is in the mix of the assets of the deceased.

Why?

Well, when a person dies, the government considers that the person disposed of (as in sold) all of his or her capital assets immediately before death. It’s called “deemed disposition”. Capital assets are significant pieces of property - the ones that tend to appreciate in value. The assets are all still there, but since the government considers they have been sold, capital gains tax is triggered, covering the period from the purchase to the deemed disposition of the asset. The sole exception is the principal residence of the deceased.

Capital gains tax are the taxes owed on the increase in value of capital assets. For example, for a house bought for $300,000 and sold for $700,000, capital gains tax would be due on $400,000.

Since the assets are all still there, deemed disposition can lead to a cash headache. The inheritors might have to sell a property just to pay off the government.

That, however, is just the half of it.

Let’s say, as will be the case for many people, the capital asset was the home of the deceased. Well, that starts out as a good thing - the capital gains tax would not apply. However, the home is still transferred from the deceased to his or her estate, so, it has a new owner.

A new owner you ask? Well, the estate is seen at law as being a “legal person”, separate from the deceased and separate from the inheritors.

What does that mean? You guessed it! It restarts the clock on the capital gains tax! If the inheritors have the estate hold on to the home for years, the estate will eventually owe capital gains tax at the time it transfers or sells the home. In the case of a transfer, that of course can lead to that same cash headache. The property may have to be sold or mortgaged, just because it wasn’t transferred in a timely fashion.

Proof positive that on matters concerning Wills and Estates law in Ontario, and in most other places for that matter, a terrain that appears serene can actually be full of unknown trip wires. To avoid stumbling, it is best to consult a professional. With offices in Toronto and Ottawa, and the ability to provide legal assistance in all parts of Ontario, we can readily assist with estate administration concerns. We can be reached by phone at 1-888-59-WILLS. You can also set up a consultation right on our website.
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Friends forever? Estate planning and social media or digital accounts.

Access to an internet connection can provide us with plenty of opportunities - from global networks of hobbyists to platforms for sharing thoughts and pictures to marketplaces with goods you can’t find locally. Participation on these platforms can be rewarding and fun, but what happens to our online presence when we pass away?

It is evident that we can’t upload a new post to Instagram or browse for a rare pair of sneakers from the great beyond. However, many of our accounts will remain active, and any assets left on the web, like rewards points, gift cards, and alternate currencies will be stuck in limbo. Furthermore, monthly subscriptions may continue to be charged to the credit card.

In addition to the wealth that can be contained in accounts on websites such as PayPal or in cryptocurrency wallets, collections of online games, music, or films, the sentimental value of memories locked into photographs and other social media posts can be substantial. For this reason, it is crucial to include details of what you wish to happen to these assets and accounts in your Will.

Know Them and Categorize Them

The first step in properly addressing the question of what happens to digital assets after a person passes on is to have the person comprehensively list every “internet access asset” she or he has. Let’s think of “internet access assets” as every account you have online. That could be anything from Facebook to your online banking access details.

Then, categorize them. The truth is, they aren’t all the same. Which ones concern money? Which ones are all social and fun? Which ones are for work or for running a business? Which ones relate to travel? They’ll all have rules that will be similar based on the industry or concern they relate to. For example, for rewards points at certain companies, the value would not be transferable to another person, and may be reclaimed by the company when a person passes away. For online banking access, it may not be in keeping with the banking agreement to simply have the executor of the deceased person take over the username and password in order to get things done for the purposes of the estate.

Still, the first step in providing an executor with the tools to do her or his job is the inclusion of account access details - usernames and passwords - within the categorized list. This, of course, underscores a related point a Wills and Estates lawyer would readily reiterate to every client - estate documents should be kept in ironclad form. Leaving a Will in a drawer, along with account details for every internet access asset, would not be very wise. A safety deposit box or a lawyer’s office would be much more ideal.

What Gets Shuts Down? What Lives On In Digital Valhalla?

Having categorized your internet access assets, the ideal step would be to separate the items in each category into two - the accounts you wish to have shut down, and the ones you wish to have live forever in digital nirvana … or digital valhalla.

For accounts to be shut down, clear instructions can be added to your Will, and their very presence in your Will would be useful to the companies or institutions that maintain the websites at issue. In many instances, and for obvious reasons, email accounts would be on the shut-down list. Part of shutting an account down might include the prior transfer of assets with monetary value or with emotional value. The process might also include the prior purchase of physical goods that would belong to the estate and be available for distribution to beneficiaries, using points, or the payment of the debts of the deceased, using points.

Know What You Want To Give Away

The sad truth is that not much thought has been put into estate planning for the digital world. So, there aren’t really a lot of digital-world-specific rules in place. Some of the bigger players are starting to “get with the program”. For example, Facebook, through Legacy Contact, allows an account holder to designate a person who would have access after death. Google, through Inactive Account Manager, allows much the same thing, and extends the access to cases of incapacity.

That said, the majority of companies and institutions are still grappling with the issue, or perhaps just ignoring it. A recent University of London study found that 85% of cloud services providers don’t have terms in place to deal with incapacity or death. So, what to do? Well, the rules of the non-digital world can in many cases apply to digital assets. That includes, with some contractual and other limitations, the ability to give an asset away as a gift. The larger and more valuable the asset, the more likely time can be put into designing a custom legal solution to have it dealt with exactly as you’d like.

Beneficiaries can be named as recipients of some digital assets, much in the same way that beneficiaries can be left a house, a dog, or a collection of antique spoons. For example, after the tragic passing of Anthony Bourdain, the probate of his Will revealed that he left his frequent flyer miles to his estranged wife. As a travel writer and TV show host, there is wild speculation about the quantity of miles she was bequeathed. Whatever the total may be, Bourdain was right to recognize the value in these digital assets and to pass them on to someone who could make good use of them.

The opposite case on point is that of Gerry Cotten, the founder of Quadriga - Canada’s largest cryptocurrency exchange. He died suddenly at the age of 30, leaving behind unaccessible cryptocurrency worth about $250 million. No plan, no accessible details.

The real life and real death examples of both Bourdain and Cotten go to show that with “internet access assets”, the estate planning stakes are only becoming higher. Even for those without $250 million lying around on a computer, getting it right for those digital things of value - however little or much they may be worth emotionally and financially - is critical. At AFOLABI, our lawyers are able to include a comprehensive digital estate strategy within your overall plan. With offices in Toronto and Ottawa, and the ability to provide legal assistance in all parts of Ontario, we can readily assist. We can be reached by phone at 1-888-59-WILLS. You can also set up a consultation right on our website.
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Your spouse can ignore your Will! Yes, you read that right.

A Will. The final testament of everyone who has lived. The final word. The final say. Sacrosanct. Unchangeable. To be respected. Right?

Not quite. A Will can be ignored for a number of reasons. Among them, perhaps the most eyebrow-raising is that a spouse can opt to ignore the contents of a Will!

Gimme 50
Following the death of a husband or wife, there is a 6 month period within which the surviving spouse can either accept the contents of the Will, or elect to receive a 50% share of the “net family property”. So, the surviving spouse can simply assess which option would deliver a greater portion (or all) of the assets available.

This ability is similar to the rights of a spouse following a divorce - in which the “net family property”, the assets accumulated over the course of the marriage, is divided pretty much 50/50. It is based on the same law - Section 6 of Ontario’s Family Law Act.

The ability is referred to as a “spousal election.”

What if the spouse died without a Will? Well, in that event, the law (Part II of the Succession Law Reform Act) sets out a formula for the distribution of the assets of persons that die “intestate” - that is the legal jargon for dying without a Will. According to that formula, the surviving spouse is entitled to the first $200,000 of the deceased’s estate, with any remainder to be divided up based on whether or not the deceased had children, and if so the number of children. This is called the “entitlement”. Here is where it gets interesting - the surviving spouse can still choose between this entitlement and a 50% share of the net family property!

You Can’t Pick Cherries
It should be noted that this is strictly “either / or”. The surviving spouse can’t opt for a spousal election partly, and for the Will partly; or opt for the entitlement partly, and for the Will partly. In essence, there is no cherry picking. There is an exception to this rule though - the Will of the deceased can specifically state that the surviving spouse’s entitlement in the Will is to be added to the amount the surviving spouse is entitled to under spousal election.

More on that “Net Family Property”
To clarify the amount of money a surviving spouse may be entitled to under spousal election, Section 5(2) of Ontario’s Family Law Act states that “if the net family property of the deceased spouse exceeds the net family property of the surviving spouse, the surviving spouse is entitled to one-half the difference between them.”

To provide an example of what this might mean, let us assume that Samantha passes away with a net family property of $1,300,000. Her surviving husband, Mario, has a net family property of $500,000. The difference between them is $800,000. They live in Ottawa, so Ontario Wills & Estates Law applies. Mario would be entitled to a claim against Samantha’s estate for $400,000. This is also referred to as an equalization payment because the net family property of both Samatha and Mario would be $900,000 following the payment.

The net family property, for each spouse, is the amount accumulated over the course of the marriage minus the amount brought into the marriage, and minus any debts. It gets quirky though. A number of assets are excluded from the calculation, such as gifts and inheritances, insurance proceeds and some court settlements.

So, a surviving spouse can ignore a Will, and opt for a spousal election instead, but doing so can get pretty labyrinthine pretty fast. Think this might be your situation now or some day? Best to retain a Wills and Estates lawyer before you make the decision - the lawyer can help calculate your net family property and determine the best choice in your particular situation.

About That Deadline
You noticed the bit about the 6 months, eh? Well, it is a rigid deadline, until it isn’t. In essence, a judge can move the deadline if there is a valid reason to do so. For example, if the execution of the estate was delayed and that was not the fault of the surviving spouse. After all, how can you decide between two options if you have no clue about one of the options?

Two fairly recent cases in Ontario reinforce this possibility. They are Mischuk v. Mischuk, 2013 ONSC 4122 and Aquilina v. Aquilina, 2018 ONSC 3607. In both cases, the application for an extension was heard within the 6 month time period following the passing of the deceased and was granted.

There is also a more recent court case in Ontario - Lundy v. Lundy, 2017 ONSC 2101 - which demonstrates that an extension of the period within which a living spouse may seek a division of net family property will not be granted when the application is made outside of the initial 6 month period.

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Estate Planning and the Blended Family - four things to keep in mind.

A picture of the modern family can sometimes be far removed from the image of the nuclear family from yesteryears - mom, dad, 2.2 kids, a dog, and a white picket fence. Today, it is gladly accepted that families come in many configurations. They are all beautiful, yet in estate planning, some present more challenges than others.

Consider the blended family, bringing together children from previous marriages, and creating a joy so unique, it has its own postal code. For the testators - that is, mom and dad who have brought their children together, estate planning tends to be the time to step back and consider asset protections for biological children.

A core principle of Ontario's Family Law Act is that marriage is an equal economic partnership. As a result, upon the death of a spouse, the surviving spouse has certain rights, among them the right to seek what essentially amounts to 50% of the assets accumulated over the course of the marriage, regardless of what the Will of the dead spouse has stipulated. For testators in blended families, this can cause a fair amount of consternation.

Let’s consider the made-up situation of the Imagines. Daniel and Sandra Imagine married 10 years ago, coming together along with Daniel’s two children from a prior marriage [Kevin (now 17) and Tamara (now 19)], and Sandra’s two children from a prior marriage [Cassie (now 14) and Hannah (now 12)]. They live in Toronto, so Ontario Wills and Estates Law applies. At the time of their marriage, Daniel had $350,000 in assets while Sandra had $50,000. They bought a home, with each contributing $50,000 towards the purchase. Over the course of their marriage, the couple have accumulated $800,000 in assets, with the lion’s share of that - $600,000 - coming from a business started and operated by Sandra. It has always been Sandra’s thinking that through the business, she would be in a position to leave Cassie and Hannah with exclusive inheritances that would rival what Daniel can bequeath to Kevin and Tamara. Is she mistaken in her thinking?

The short answer is “yes”, unless she takes estate planning steps beyond simply getting her Will drafted and executed. Should she predecease Daniel, she could leave the $600,000 she has accumulated to Cassie and Hannah through her Will, but Daniel can simply - and legally - ignore that Will and take half of that amount since it was accumulated over the course of their marriage. Considering the reverse, should Daniel predecease her, she wouldn’t be able to take half of his $300,000 in assets since it was accumulated by him prior to their marriage.

With a combined total of $1,200,000 in assets, David and Sandra are in a position to leave $300,000 to each child, regardless of biological parentage. However, if they intend to take a different approach to their bequests for whatever reason, the law - in its “untamed” form - can quickly begin to get in the way.

To further complicate matters, in Ontario, marriage revokes a Will. So, if Sandra and Daniel both have Wills leaving everything first to one another, and then to their children equally after the last of the two of them dies, and Sandra dies, and Daniel remarries again, his Will is revoked! If he doesn’t execute a new Will, he would die “intestate”, meaning that the law uses a fixed formula to determine who gets his assets (including the assets intended by Sandra for their children). That formula would see Daniel’s surviving wife, and any children they have together, get those assets! This would be far removed from what Sandra intended.

Conundrum upon consternation, right? The estate planning concerns of blended families tend to be more complex, and the emotional weight behind decisions tend to be heavier. In the midst of it all are the children, and a large part of the challenge is getting it right for them. So, what to do?

1. Talk about it.

There is simply no substitute for good, honest, open conversation. Talk to a good estate planning lawyer to get the facts, the law, and the options straight, then take the time to hash out the hopes, the fears, the details, and the possibilities. Do all of that, then return to the estate planning lawyer with the makings of an approach for legal implementation.

2. Don’t be afraid of marriage contracts.

One of the best ways to ensure that your assets are distributed as you would like involve “taming” the law by using an agreement. While marriage contracts tend to be seen as indicative of a lack of faith in a spouse or a marriage, they often are simply indicative of a settled intention to put the interests of the children above all other considerations. It would be possible, for example, to agree that a surviving spouse will not exercise his or her right to claim 50% of the assets accumulated over the course of a marriage, thus saving the assets for the children.

3. Don’t be intimidated by trusts.

We’ve all heard the phrase - “trust fund baby”. It conjures up the image of the children of ultra-rich parents, born with a silver spoon right in their mouths. In truth, trusts can be useful to everyone, and can - for example - be funded via insurance proceeds, or gains from the sale of a real estate holding. Want to ensure your loved ones actually get what you want them to have regardless of complex domestic circumstances and quirky legal stipulations? A trust should be right up there with your Will, and your trustee can be a financial institution rather than a person.

4. Keep your designations in the game.

What are designations? Remember that time you were setting up your RRSP and the banker asked who you’d like to give the funds to should you pass on? It had you thinking quickly, and perhaps you gave a half-certain answer, which was recorded on a piece of paper, which you signed. If you are like most people, you aren’t too sure of where that piece of paper is at the moment. Well, that paper is a designation. Most Canadians hold a substantial portion of their assets in RRSPs, TFSAs, LIRAs, insurance policies, and so on. These “registered” or contractual assets don’t have to be bequeathed through a Will - the simple designation does the trick. If you pass on, the bank simply follows the indication in the designation, and the fund ends up with who you want. This makes those funds, along with the designations attached to them, a very important tool in estate planning - especially for keeping options open in the midst of complex domestic circumstances.
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