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LaW TIMeS • OCTOBeR 26, 2015 Page 11 www.lawtimesnews.com honoured in the breach, it's important to file one," says Templeton. "Failure to file a re- turn could expose the estate to U.S. estate tax because of the loss of treaty benefits." A second trap arises when people make as- sumptions about what qualifies as U.S.-sited assets. According to Cirone, it's not just real estate. "Lots of Canadi- ans have big amounts of U.S. securities in their portfolios and don't know they are at risk of U.S. estate tax. U.S. se- curities can be U.S. situs property even if they are on the Toronto stock exchange. A simple Canadian reorganization can resolve this problem." The calculation of the value of the worldwide estate can also come as a sur- prise to Canadians. "The relevant amount for U.S. estate tax purposes is your gross worldwide assets," says Cirone. "Lots of people think that the calcula- tion is net worldwide assets." For U.S. citizens and permanent resi- dents, the calculation also includes assets not included in a Canadian estate, such as the value of life insurance. "Wealthy people can run into this threshold even if their assets are not that large," says Cirone. "If you have a $2-million life in- surance policy, that will add $2 million to your U.S. gross estate." Ignorance can lead to a lack of suitable planning or misguided attempts at avoidance. Cirone and Chang see many wealthy Cana- dians who buy proper- ties in places such as Florida and put it in their personal names. "If they come and see us a couple of months later, provided the fair market value remains the same, we can do a cross-bor- der reorganization and get it into the structure they should have had," says Cirone. "If the value has gone up, there's not much we can do." When it comes to minimizing or deferring U.S. estate tax, Kristoff lists various strategies, such as holding U.S. property through trusts or corporations, gifting property to family members and charities, holding property jointly with a right of survivorship, and using non-re- course mortgages to fund U.S. real estate purchases. "These strategies are subject to different restrictions and limitations, and each has its own advantages and disad- vantages," he says. For trusts and joint partnerships, cli- ents should be careful about the struc- ture. "Be careful who you go and see," says Cirone. "We see a lot of people who put property into a trust, then one or two years later, they come and see us and it's not done properly, either on the Canadi- an tax law side, U.S. tax law side or both. It's a complicated, specialized area. The trust must be structured properly from the IRS perspective. If the owners haven't given up enough power or ownership, it will be disregarded and still be subject to U.S. estate tax." Cirone and Chang also recommend that the testator carry out a cost-benefit analysis before setting up a trust or lim- ited partnership structure to buy the U.S. real estate. "If it's going to be a $10,000 tax bill, why spend $5,000 to $6,000 plus filing fees to set something up?" asks Chang. "If your net worth is over $7 [million] to $8 million, it may be worth it. But for $4 [million] to $6 million, it's not worth it." Templeton also draws attention to the U.S. gift tax that kicks in when someone transfers property to children or puts it in joint names. "If people haven't got proper advice and they decide to place their U.S. property in the joint names of themselves and their children to reduce exposure to U.S. estate tax, it's a disaster. Firstly, they expose themselves to income tax; secondly, there might even be estate tax; and thirdly, there's a gift tax liability that's immediate." In fact, Cirone believes it sometimes makes more sense to rent and refers to a current trend of buying into Canadian- based real estate investment trusts that track the performance of the U.S. market. "These investment vehicles give the un- derlying return you would get from own- ership without the problems." LT T he limits of testamentary freedom were recently tested in Spence v. BMO Trust Company, a Will challenge brought by a disinherited daughter who, for most of her life, enjoyed a close relationship with her father. Relying on the uncontested affi- davit evidence of a disinterested third party, the Ontario Superior Court of Justice found that the testator's motivation for disinheriting his daughter was "based on a clearly stated racist princi- ple." Accordingly, the court set aside the Will because the testator's motives offended public policy. The two primary issues before the Ontario Court of Appeal on September 4, 2015, were the admissibility of extrinsic evidence in the absence of ambiguity on the face of the Will and the application of the doctrine of public policy to set aside a testamentary instrument. The Appellants' argument for the inadmissibility of the evidence may have sidestepped the fundamen- tal premise of the Respondents' submission. Lack of ambiguity or equivocation in the Will relates to the testator's intentions, but as the Respondents submit- ted, motives are distinct from intentions. A testator's intentions involve what the testator wanted to do with his or property. A testator's motives involve why the testator did what he or she did. Courts have implicitly recognized this distinction, admitting extrinsic evidence in cases concerning racist motives. In McCorkill v. McCorkill Estate, there was no ambiguity with regard to the testator's intentions. It was clear on the face of the Will that the testator wanted to give an unconditional bequest to the National Alli- ance - an American-based, neo-Nazi organization. But the court still considered evidence of the nature and mission of the recipient when it set aside the Will. The court concluded, implicitly, that the testator's gift was motivated by racism. Discrimination often operates in secret. Simply because a testator is silent about racist motivations within the four corners of the Will does not make his or her behaviour less abhorrent. Testators should not be permitted to be racist so long as they are not explicit about it. In instances where there is a Will that alerts the court's attention, it is arguable that extrinsic evi- dence from a disinterested third party of racism should be admissible. Furthermore, discrimination offends public policy. This is evidenced by human rights legislation, interna- tional anti-discrimination instruments signed by Canada, and the obligation to develop the common law in accor- dance with Charter values. In the words of Tarnopolsky, JA, in Re Leonard Foundation, "The promotion of racial harmony, tolerance and equality is clearly and unques- tionably part of the public policy of modern day Ontario." It will be interesting to see what the Court of Appeal ultimately decides. By Suzana Popovic-Montag Wills motivated by racism: Should they be set aside? FOCUS Filing a U.S. tax return a key requirement Continued from page 8 Promote your law firm by ordering reprints of articles from the voice of the profession — Law Times! Reprints are great for: Been in Law Times Been in Law Times Want a record of it • Firm promotional material • Use on your web site • Training and education • Suitable for framing $200–$250/reprint We provide a colour PDF and unlimited reproduction rights. For more information or to order reprints, please e-mail Gail Cohen at: gail.cohen@thomsonreuters.com 'There are people with no real feeling of connection to the U.S. who fly under the radar, but they are actually subject to a whole lot of obligations,' says Wendy Templeton.

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