Law Times

Page 14 February 23, 2015 • Law Times www.lawtimesnews.com Avoiding liability under new estate tax regime January changes mean new financial reporting obligations for trustees By Judy van rhiJn For Law Times he new year has ush- ered in a warming of the estate tax climate with new obligations for executors and, consequently, for their lawyers. The applica- tion of the new regulations will determine just how hot it's going to get for those charged with the administration of an estate. The new Estate Administra- tion Tax Act regulations and forms that came into force on Jan. 1 subject estate trustees to new reporting requirements. They have 90 days after the is- suance of their certificate of ap- pointment to file a sworn estate information return with the Ministry of Finance contain- ing the total value of all of the property that belonged to the deceased at the time of death. Jordan Atin of Hull & Hull LLP organized a seminar on Jan. 15 for the Institute for Wills and Estate Education that in- cluded information on the new requirements. "There's a lot still the same," he says. "The obligation estate trust- ees had to make full and proper disclosure of assets they believe to have belonged to the de- ceased at the date of death hasn't changed. The definition of what you have to disclose when you apply for probate and the practice of obtaining probate also haven't changed. It's what comes afterwards that has changed." The previous disclosure was under affidavit, and his- torically there was no audit. "The executor signed off and nobody looked, nobody cared," says Atin. "We were only dealing with the court and there was no ministry involvement. That changed on Jan. 1." Under the old system, there were only three catego- ries relating to property to complete. "Formerly, there were three boxes: real estate, everything else, and the to- tal," says Atin. "No inventory was required. Now you must specify such as- sets as bank accounts, invest- ment accounts, and automobiles and specify precisely how you arrived at the value. Then you see if the ministry wants to audit it for accuracy." Atin notes ministry officials present for the seminar said trustees don't have to send an appraisal at that point. "It's not like the CRA where they review every return and assess whether it's correct or incorrect. They will pick certain ones to review. You won't know whether yours will be one. They won't disclose what reasons they will use to audit certain ones. I guess that means that no news is good news." However, the chance of an audit means executors will have to be able to substantiate the valuation they've included. The guide issued by the min- istry indicates estate trustees should use their best judgment and keep all records relevant to the valuation. "They will ask for background informa- tion, evidence to support the numbers you put down," says Atin. "They want to see rea- sonable efforts to determine value. You can't rely on what the neighbour said or what you think. That will no lon- ger cut it." Atin feels executors will probably need a third-party valuation. Municipal Prop- erty Assessment Corp. "as- sessments are not determi- native," he says. "It doesn`t necessarily ref lect the value at the date of death. The min- istry representatives are say- ing that if you give us that, you're not off the hook. My sense is they are not looking to get involved for a difference of $830,000 or $850,000. The amount of tax, namely 1.5 per cent on that amount, is small. But if you value a house in Rose- dale for $100,000, they'll be in- terested." The seminar also covered the enforcement regime. "The min- istry officials said clearly that there will be communication between the court and the min- istry," says Atin. "They will have the list of probate applications and make sure the estate trustee files on time. There are significant pen- alties for not filing a return." He refers to the offences un- der the Estates Administration Act and offences and powers under the Retail Sales Tax Act that provide for a fine and pos- sible imprisonment for two years. "That's what's concerning people. If you don't comply with the obligation, you're guilty of an offence. Any person giving information or who assists in making a statement, such as an appraiser who gives the lowest number, is liable." The broadness of that section can also catch lawyers. "If a cli- ent says, 'You know, I've got lots of jewelry but put it down at $5,' you're potentially guilty," says Atin. In fact, the Law Society of Upper Canada is planning an online information session on the new reporting requirements on Feb. 27 at which a criminal lawyer will be educating mem- bers about the new offences. Meanwhile, Atin believes lawyers' reporting letters to cli- ents need to change. "We must properly advise them that they have a duty to file, to disclose property, and to get advice on specific assets or they will be subject to severe penalties." LT New Edition The 2015 Annotated Ontario Family Law Act James C. MacDonald and Ann C. Wilton Available risk-free for 30 days Order online: www.carswell.com Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 Order # 986146-65203 $119 Softcover November 2014 approx. 1100 pages 978-0-7798-6146-0 Annual volumes available on standing order subscription Multiple copy discounts available Shipping and handling are extra. Price(s) subject to change without notice and subject to applicable taxes. 00225WH-A46523 New in this edition This new edition features updates to the case law annotations of the provisions of Ontario's Family Law Act, including substantial revision of the commentary in the following parts: • Part I – Family Property – Cases discussed include DeCaen v DeCaen (2013, Ont CA), Carey v Almuli (2013, Ont Sup Ct), Mildren v Mildren (2013, Ont Sup Ct), and Latchman v Sullivan (2013, Ont Sup Ct) • Part III – Support Obligations – Cases discussed include Martin v Sansome (2014, Ont CA), Goodfellow v Tordjman (2013, Ont CA), Baiu v Baiu (2014, Ont Sup Ct), Lindsay v Jeffrey (2014, Ont Ct J), and White v White (2014, Ont Sup Ct) • Part IV – Domestic Contracts – Cases discussed include Wodzynski v Wodzynski (2012, Ont CA), Stevens v Stevens (2013, Ont CA), Stupka v Stupka (2013, Ont CA), and Aly v Nader Halal Meat Inc. (2013, Ont Ct J) FOCUS T Lawyers' reporting letters to clients need to change, says Jordan Atin.

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