New Federal Estate Planning Legislation

Make a Will Month (November) may be officially over, but this year we are still encouraging Ontarians to review their Estate plans because of new rules! On December 16, 2014, the Conservative government made amendments to the Income Tax Act, which impact the Will and estate planning process. Both amendments begin in 2016. Check your Will – you may need to take immediate action!

Amendment – Charitable Gifts – Three year Graduated Rate Estate

Right now, charitable gifts in your Will result in tax credits that can be used against taxable income in the year of death and in the year before it. Your Executor/Trustee uses these credits to reduce or eliminate taxes in the year of death or claw back taxes paid from the previous year.

The new rule states that all charitable gifts stated in your Will must be made within three years of the date of death or the valuable charitable tax credits can no longer be used. Your gift will still stand, and the charity will issue the tax receipt; however, if the tax receipt is dated more than three years after death, it cannot be used to reduce your taxes.

What you need to do: If you are considering or have included a charitable gift in your Will, please ensure that your Executor/Trustee is aware of the new rules so you get the best possible tax breaks

Amendment – Spousal Tax Liabilities – Spousal Trusts, Joint Partner Trusts, Alter Ego Trusts

The Income Tax Act says that all individuals are to have “disposed” of their capital assets upon death, even if they have not sold any of them. The government calls this a “deemed disposition” and it can lead to a large capital gains tax for the estate.

Under the old rules, the taxes from a “deemed disposition” must be paid by the estate of the deceased person, which makes sense as the assets belong to the estate. Sometimes, these assets are not liquid, meaning cash flow can become an issue for the remaining spouse. In the past, a Will could direct a spousal trust be set up to ensure the well-being of the remaining spouse and the taxes could be deferred until the surviving spouse passes away.
The new rules make the spouse pay these taxes. This new rule is dramatic as the ownership of the assets still remains in the first estate and imposes a tax liability onto a person who does not own them.

Action: If you have a trust in your existing Will please seek professional guidance as soon as possible.

Please note that a number of technical submissions from law firms and accountants have been made to the new Federal Government on the inherent unfairness of these new rules. Stay tuned!

Learn more about Will planning on our website.

Colleen Bradley

Chief Development Officer, Planned Giving

Alzheimer Society of Ontario