Estate Planning Law -- Death and Taxes

DEATH AND TAXES -- Estate Planning Advice

By Darryl Aarbo. Barrister and Solicitor

 “…in this world nothing can be said to be certain, except death and taxes.”

—Benjamin Franklin, in a letter to Jean-Baptiste Leroy, 1789

 As was stated by Benjamin Franklin, two of the great certainties in life are death and taxes.   It should also be noted that death does not get you out of paying any taxes. In fact, it may result in you paying more taxes in a particular year than would normally have been owed if you had survived. Good tax planning is always a good investment if you want your heirs to get the maximum benefit from the money you have saved.

When you die someone will have to file on your behalf (usually your executor) various tax returns. There will be a deemed year end on your date of death. Your estate will be responsible for any taxes accrued up to that date as you normally would.  In other words, any money earned as income up to that point would be declared in the final return and you would be taxed the marginal tax rate where your income puts you.  This is where good tax planning is crucial because there can be a “deemed disposition” of your  assets upon your death.  For example, your RRSPs are normally all deemed to have been sold on your date of death.  If you have $200,000.00 in RRSPs then your estate is going to have a very big tax bill because all of those RRSPs will be fully taxed.  A good portion of that money is going to be taxed at the top bracket of 39% (Alberta).  With tax planning the RRSP deemed cash in may be able to be avoided by naming a spouse or common-law partner as beneficiary of the RRSP.

Good tax planning may also involve purchasing property in joint names or transferring it into joint names so that on death of one joint owner the deemed disposition does not then occur.

Further, after you die then a new taxable entity will be created, that being your “estate”.  An estate is taxable in an analogous fashion of the Corporation. There is no physical entity per se, but it is a legal entity and it is subject to taxation.  If there is any income earned after your death, such as interest or rent, then trust returns will have to be filed for every year after you die until your affairs completely resolved and the Canada Revenue Agency (“CRA”) issues a document stating that all of the deceased taxes have been paid in full.

There are strict timelines in place by CRA.  Failure to meet these deadlines can result in penalties and interest:

·         If the death occurred between January 1 and October 31, the due date for the final return is April 30 of the following year;

·         If the death occurred between November 1 and December 31, the due date for the final return is six months after the date of death.

·         The due date for filing the T1 return of a surviving spouse or common-law partner who was living with the deceased is the same as the due date for the deceased final return indicated above

If the deceased or the deceased spouse or common-law partner was carrying on a business in the year of death the following due dates apply:

·         If the death occurred between January 1 and December 15, the due date for the final return is June 15 of the following year;

·         if the death occurred between December 16 to December 31, the due date for the final return is six months after the date of death.

For more information contact the lawyers of Courtney Aarbo Fuldauer LLP, Barristers & Solicitors.

darrylaarbo@courtneyaarbo.ca 

 *The information contained in this blog is not legal advice. It should not be construed as legal advice and should not be relied upon as such. If you require legal assistance, please contact a lawyer*

Verbal Agreements versus Written Agreements -- Legal Principles

What happens if a verbal agreement conflicts with a written agreement?

By Anthony Pranata, Barrister & Solicitor

January 6, 2014

First and foremost, all contracts in Canada are subject to what is known as the “parol evidence rule”. The parol evidence rule generally bars extrinsic evidence (ex. things that are verbally expressed between two parties) that would alter the meaning of a written contract.

When the written contact is clear, the parties' intention is to be derived primarily from the words they have used in the contract. Evidence of context cannot be allowed to contradict those words.

For example, if you enter into a written contract with another person to sell your car to him for $10,000.00, he cannot turn around and say that, after you two signed the agreement, you verbally agreed that you would sell him the car for only $9,000.00 because the power windows do not work.

However, let’s say that the written contract stated that the price of the car is either $10,000.00 if the power windows work or $9,000.00 if the power windows do not work. And let’s say that the windows only roll down half way. Does this mean that the power windows do work or do not work? Obviously you are going to argue that the windows do work because they do in fact go down, but the buyer is going to argue that the power windows do not work because these windows can only be rolled down halfway.  In this case, the written contract is ambiguous because it does not describe in detail what a “working power window” entails. Since the written contract is reasonably susceptible to having more than one meaning, extrinsic evidence would be admissible in a court of law to try to describe what you and the buyer meant by a “working power window”.

There are other exceptions to admitting oral evidence to vary a written contract, but in general:

a)      Extrinsic evidence cannot be used to interpret a contract if the contract is clear and unambiguous.

b)      Extrinsic evidence may be used to interpret a contract if the contract is ambiguous.

c)       Extrinsic evidence on an issue that is silent in the original written contract will be accepted by a court of law. In this case, provided that the extrinsic evidence satisfies all the legal requirements for forming a contract, the extrinsic evidence simply becomes a collateral contract (a second contract in addition to the original one).

For more information, please contact the law office of Courtney Aarbo Fuldauer LLP, Lawyers.

Anthony Pranata

Barrister & Solicitor
Anthony's bio: http://www.courtneyaarbo.ca/pranata.php
Anthony's email: apranata@courtneyaarbo.ca

*The information contained in this blog is not legal advice. It should not be construed as legal advice and should not be relied upon as such. If you require legal assistance, please contact a lawyer*

Child Support Obligations in Shared Parenting Regime -- Family Law Information

SHARED PARENTING AND CHILD SUPPORT OBLIGATIONS

by Darryl Aarbo

A situation that comes up quite regularly and is misunderstood by many clients is the child support obligations where there is shared parenting regime in effect.  Shared parenting occurs when each parent’s care of the children falls within the range of between 60% and 40%.  In other words, each parent has the children for at least 40% of the time.

The analysis of when the parents are in a shared parenting arrangement, assuming they do not agree, is complicated in itself.  Do you factor in school time?  Sleeping time? What time do you factor in?  That analysis can be difficult unless the parties agree.  We will assume for the purpose of this article that the parents have agreed that they are in a shared parenting arrangement or the Court has made that finding.

The misunderstanding of clients on the child support arrangements in a shared parenting regime has reached the proportion of urban myth.  What I mean by that is clients assume that once they are in a shared parenting arrangement then there will be an automatic set off of child support obligations.  For example, parents will look at what their child support obligations would be to the other parent and then figure out what the other parent would pay them if the children were with that person full time and set off the two amounts.  For example, they figure out that if the kids were living with Mom full time then Dad would have to pay her $1,000.00 per month.  Then they figure out that Mom would have to pay Dad $500.00 per month if the kids were living with Dad full time.  They take the two amounts and set them off and determine that Dad should pay Mom $500.00 for the support of the children in the shared parenting arrangement.

Some clients believe this to be the case no matter what and want it to be the case so badly that they have a hard time accepting that this is not necessarily the situation.  The decision of Contino v. Contino 2005 SCC 63 clarified the law in this regard.  Although the decision is more than five years old and it is from the Supreme Court of Canada, many people understand that the set off is the only way to deal with child support.

Section 9 of the Federal Child Support Guidelines states as follows:

            “9        Where a spouse exercises a right of access to, or has physical custody of

                        a child for not less than 40% of the time over the course of a year, the amount

                        of the child support Order must be determined by taking into account:

(a)   the amount set out in the applicable tables for each of the spouses;

(b)   the increase cost of shared parenting arrangements; and

(c)    the conditions, means, needs and other circumstances of each

spouse and of any child for whom support is sought.

In the Supreme Court of Canada’s analysis of this section it stated that section 9 does not include a conclusive formula to determine how the table amounts are to be considered or accounted for.  It stated that a simple set off amount is only a starting point for the section 9 analysis, that it must be followed by an examination of the continuing ability of the recipient parent to meet the needs of the child, especially in light of the fact that many costs are fixed.

Section 9(c) gives the Court a great deal of discretion to modify the set off amount where, considering the financial realities of the parents, it would lead to a significant variation in the standard of living experienced by the children as they move from one household to the other.  It further stated that the Court should, in so far as possible, ensure that the child of the parties enjoys a standard of living that is reasonably comparable to the standard of living before the divorce and does not vary markedly in material respects moving from one household to the other.  The method for achieving this outcome should be evidence based.

What the Court is stating is that there is not a simple formula.  Setting off each parent’s child support obligations is only the first step.  After that the Court can tinker with the child support to meet the objectives set out by the Court and the Federal Child Support Guidelines.  In the experience of the writer, it is common for the Courts to engage in this analysis.  Nevertheless, the myth exists amongst not only clients but some lawyers that all one does is do a set off.

What the Court has to do is engage in an analysis of the standard of living of each household.  If one household is heavily burdened by debt or the affect of the set off would have a negative impact on the children, then the Court can and will vary the set off amount to minimize any negative impacts on the children.  In fact, the Court can have one parent pay the full amount of his or her child support without any set off at all. 

From a practitioner point of view, it is important to note the Court’s comment that it is evidence based.  The parties must lead evidence for the Court to do the analysis.  In other words, one cannot simply submit to the Judge the parties’ income and the set off amounts using a simple formula or table provided by one of the child support software programs.  The parties must lead evidence of each party’s standard of living, expenses, revenue, income, debt and assets.  Basically, comprehensive budgets and sworn statements of assets, debts and income must be submitted.  Income must be broken down and not simply providing the line 150 amount for the Court.

Darryl Aarbo, Barrister and Solicitor

Darryl's bio: http://www.courtneyaarbo.ca/aarbo.php

Darryl's email: darrylaarbo@courtneyaarbo.ca

The information contained in this blog is not legal advice.  It should not be construed as legal advice and should not be relied upon as such.  If you require legal advice, please contact a lawyer.