Law Times

Law times • OctOber 27, 2008 FOCUS TFSA doesn't yet get same treatment as RRSP BY GLENN KAUTH Law Times count as the most significant savings product since the cre- ation of RRSPs, trust and es- tates lawyers say that in at least one respect it doesn't get the same treatment as the popular retirement funds. On Jan. 1, 2009, people will be able to contribute up to $5,000 to a tax-free savings account, the interest on which won't be sub- ject to income tax. The measure was first introduced in February's federal budget as a move to boost savings. Unlike RRSPs, people can withdraw from the accounts with paying a tax penalty. But the so-called TFSAs differ W hile commentators have hailed the new tax-free savings ac- from RRSPs in at least one other aspect for the moment: legisla- tion in at least Ontario doesn't yet allow account holders to des- ignate a beneficiary upon death. The issue matters because peo- ple typically name a beneficiary for assets like RRSPs and life insurance policies outside of a will under the authority of Ontario's Succession Law Reform Act, says Jordan Atin, a lawyer who chairs the Ontario Bar Association's trust and estates section. Now, the OBA is lobby- ing the government to change the legislation to allow the naming of a successor since otherwise they would have to do so through a will, something that would require the payment of probate fees on the value of the TFSA. "What we're trying to get and huge rush to get those (designa- tions) because you can only put in $5,000 a year. So the savings on $5,000 in the first year on probate fees is minimal. But as these grow, certainly the finan- cial people are saying every adult should have one of these if you've got any excess cash," Atin says. "So we're going to see them become larger and larger assets that are going to grow tax free and then we're going to want to see that we can designate benefi- ciaries in these plans." Atin adds that although the Ontario law mentions assets that are "similar plans to an RRSP," it's not clear that the courts would consider TFSAs to be so and therefore covered under the legislation. "Whether TFSAs are similar plans, we don't know yet. There's no case on that and there won't be for some time." In the meantime, Atin says lawyers should at least mention the issue of succession to clients planning their estates. "Lawyers should advise their clients that you can't designate a beneficiary yet, but [that] when you are able you should come back and we should talk about designating a beneficiary on those." For the time being, the ques- tion of succession remains up in the air, but Atin says he doesn't expect the provincial govern- ment will resist the OBA's re- quest on the issue. "We've lob- bied the government on that and we're expecting some response shortly. It's not a very big issue from the government's point of view in the sense that it doesn't cost them very much money in terms of the probate fees they're going to lose. So we expect them to do something." Meanwhile, the government is currently reviewing the OBA request to change the Succession Law Reform Act. "The Ontario government will be considering this as part of the 2009 budget," says Ministry of Finance spokes- man Scott Blodgett. PAGE 9 Mandatory mediation hits 10-year mark BY GLENN KAUTH Law Times ronto, Windsor, and Ottawa. "It's proved exceedingly successful in that the vast majority of cas- es that go to mandatory mediation are resolved either at the time of the mediation or at some point following the mediation. Therefore, its effectiveness having been demonstrated, there would seem to be no reason why it shouldn't apply across the province," says Brian Schnurr, a Toronto trust and estates lawyer and mediator. It was in January 1999 that the province launched mandatory mediation in both Toronto and Ottawa following the introduction of case management in those cities. In 2002, the government ex- panded it to Windsor, but since then the program has stalled. It's a situation that also has Heather Swartz, the president of the ADR Institute of Ontario, scratching her head. "It would be our position that the use of mandatory mediation be extended throughout the province," she says. "Certainly, when mediation was introduced as a pilot, that was the intention of attorney general at that point in time, Charles Harnick." Swartz isn't sure exactly why mandatory mediation hasn't grown but she does have some hunches. "The difficulty is case manage- ment isn't [available] throughout the province at this stage. Not all See Lawyers, page 10 T his January marks the 10th anniversary of mandatory me- diation in Ontario, but some trust and estates lawyers and mediators wonder why the program is still limited to To- LT hasn't been legislated yet is a sim- ilar beneficiary designation for these tax-free savings accounts to avoid probate on those," says Atin. "That's really the essence of why we designate beneficiaries." In its submission to the prov- ince, the OBA argues that al- though federal legislation men- tions succession to a spouse, its jurisdiction extends only to the tax-free status of the TFSA under the Income Tax Act. That means that if someone takes ownership of the account upon a spouse's death, he or she can maintain the tax exemption on the funds without reducing his or her own TFSA contribution room, ac- cording to the OBA document. "The budget and draft legislation does not refer to any other person who can be a successor holder," the document, which argues the ability to name a beneficiary out- side of a will is within provincial jurisdiction, notes. "Right now, because it's a ques- tion of property and civil rights, it's governed by provincial legis- lation," says Atin. "For example, even though RRSP designations are available across the country, they're legislated provincially." Ontario Ministry of Finance officials weren't available for comment on the issue, but Atin says that while the matter is an important one, it's not overly pressing since the TFSAs don't take effect until the new year. As well, the fact that the tax-free limit is $5,000 a year means they won't be worth a lot of money for some time yet. "There's not a Key Developments in Estates and Trusts Law in Ontario, 2008 Edition Madam Justice Bonnie Croll and Melanie Yach With contributions by: Jeanne Chiang, Susan Easterbrook, Lou-Anne Farrell, Paul Gibney, Robin Goodman, Heather Hansen, Ian Hull, P. Ann Lalonde, Jonathan Lancaster, Martha McCarthy, Margaret O'Sullivan, Suzana Popovic-Montag, Archie Rabinowitz, Susan Slattery, Kristina Soutar, M. Jasmine Sweatman, Corina Weigl and Kimberly Whaley Published annually, this book brings together a team of leading practitioners who together provide expert insight into the latest noteworthy developments in estates and trusts law. Find out how these key developments will affect your practice and your clients, now and in the future. Articles include: by Madam Justice Bonnie Croll by Susan Slattery by Paul Gibney, Kristina Soutar and Jeanne Chiang by Robin Goodman by M. Jasmine Sweatman by Martha McCarthy and Heather Hansen by Margaret O'Sullivan by Kimberly Whaley helping you to stay abreast of key statutory and case law developments in estates and trusts law in Ontario www.canadalawbook.ca www.lawtimesnews.com CROLL_Key Developments in Estates and Trusts(LT 1-2x4).indd 1 10/22/08 10:02:05 AM by Lou-Anne Farrell by Corina Weigl and Jonathan Lancaster by Ian Hull and Suzana Popovic-Montag by Melanie Yach by P. Ann Lalonde by Susan Easterbrook by Archie Rabinowitz

• Cover
• Slip And Fall
• Focus On Trusts And Estate Law
• Eye On Hamilton