The Estate House

The Saga Continues for the Godfather of Soul

Last week, almost exactly a year after his death, James Brown's children filed court documents formally challenging their father's will.  They are alleging undue influence at the hands of his advisors who stand to make money from managing the trusts set up in the will. 

Undue influence is a very difficult allegation to prove when it comes to invalidating a will.  In Alberta, the courts will first presume in favor of the testator's intention.  Those seeking to invalidate the will must then provide evidence of suspicious circumstances and undue influence.  If the court finds that suspicious circumstances were present, it is up to those propounding the will to rebut those circumstances and show that they had no effect on the testator. 

The reason why these allegations can be so difficult to prove is because the primary witness is deceased.  As a result, any evidence usually comes from third parties (i.e. friends, doctors, etc.) who can provide their interpretation of the testator's state of mind at the time the will was executed.   It is sometimes easier to prove undue influence when mental capacity is also an issue; however, if it is not, then the courts are traditionally very respectful of a testator's intention and will not disrupt it unless there is clear, substantiated evidence of undue influence. 

From Tax Tool to Nation Builder

As is common at the end of the calendar year, various publications are announcing their version of "person of the year".  Today, the Globe and Mail announced Don Johnson, an investment banker from Manitoba, as its Nation Builder for 2007.

I had never heard of Don Johnson (at least not this Don Johnson) before this article, but I was familiar with the accomplishment for which he was receiving recognition.  Mr. Johnson is considered to be the primary advocate responsible for changes to the federal Income Tax Act that allow publicly-traded securities to be donated to charity without incurring capital gains tax on the disposition of those securities. 

This is an incredible tool that estate planners have been eager to recommend to their clients as a way of minimizing their tax bill, both on an annual basis and as part of their will.  If one of our clients wishes to make a donation to charity from their estate, we will always include wording that will allow their executor to make that donation with publicly-traded securities.  If you want to enable your executor to have that power, you need to make sure that the wording in your will is correct; your executor must be specifically empowered to make that donation with publicly-traded securities in order for your estate to receive this tax benefit. 

Who Should Decide?

This morning, the Court of Queen's Bench in Manitoba is being asked to decide on the fate of an elderly man who has been on life support since late October.  The man's family believes that to remove the tubes would violate his religious beliefs, which say that you are not to hasten death.  The doctors, however, have said that there is nothing more that they can do for him, that he is essentially brain dead, and that it is unethical to continue this treatment given the circumstances.

Personally, I find it fascinating that the doctors believe that they should dictate this man's treatment.  I am not aware of any jurisdiction where the doctor would have the final say over the wishes of the patient, or in the event of the patient's incapacity, the patient's agent under a Personal Directive or Living Will or a publicly-appointed decision-maker.    In Manitoba, while they do not have "Personal Directives", as we call them in Alberta, it is my understanding that they do have other pieces of legislation which allow an individual to appoint a person or persons to make health care decisions on their behalf when they are incapacitated.  In the event that an individual is already incapacitated, a "committee", usually comprised of one or more family members, can be appointed by the court to make those decisions. 

This case serves as another reminder as to why it is important to have a Personal Directive or Living Will.  As it stands, this man has no substitute decision-maker and, therefore, it has created this gap that the doctors want to fill.  No one disputes that a doctor's advice should be taken into consideration in these situations, but no one should have to worry that a doctor, not their family, can ultimately decide their fate, regardless of their beliefs.  I hope the Court sees it that way too.    

Personal Directives Amendment Act 2007

Last week a flurry of activity surrounded the Alberta legislature as the government tried to pass as many bills as possible prior to the Christmas break.  While most of the media attention centred on a couple of the more contentious legislation, an astonishing 25 pieces of legislation passed third reading during a marathon session of the legislature on December 3 and 4.

One of the new bills is the Personal Directives Amendment Act 2007, which I discussed here.  It received Royal Assent on December 7.  Practitioners in this area, including not only lawyers, but also health care workers, should make themselves familiar with the changes to the legislation. 

Can You Avoid Capital Gains Tax?

I've had a few files recently where the main question the client wanted answered was, "How can I avoid the capital gains tax?"

Unfortunately, the answer is (most of the time), "You can't."   Minimize? Yes.  Avoid? No (with one exception, as I'll point out below).

Take, for example, the client who has a second property that he rents out.  It has increased in value significantly since he purchased it three years ago.  He is trying to figure out how to deal with the potential capital gains tax his estate would have to pay on his death. 

The first suggestion is to put it into joint ownership with the eventual heir.  However, the Canada Revenue Agency (CRA) will treat this as a partial distribution and the client will have to pay tax on half the gain as soon as it's transferred.  He will also expose himself to the creditors of the joint owner and may end up losing his property if the joint owner has credit problems.   Furthermore, his estate will have to pay tax on half the gain again when he dies.  Even though the property will transfer easily with the right of survivorship, CRA will still treat it as a disposition. 

Another frequent suggestion is to sell the property at less than fair market value to the eventual heir.  Unsurprisingly, CRA has caught on to this.   Say you purchased property for $10 and it's now worth $100.  You sell it to your child for $50.  Not only will the CRA tax you on the gain between $10 and $100, it will use $50 as the adjusted cost base when your child disposes of it, meaning that the gain between $50 and $100 will be taxed twice.  So much for that idea.

The one way you can avoid paying capital gains tax entirely is if the asset in question is publicly-traded securities.  Recent legislative changes state that you do not have to pay capital gains tax on publicly-traded securities if those securities are donated directly to a registered charity. 

Furthermore, charitable donations can always be used to minimize your estate's overall tax bill.   In Alberta, donors now receive a 50-cent tax credit for every dollar over $200 that is donated to a registered charity.  This means that a charitable donation of $10,000 will result in a tax credit of $5000. 

And as always, it is a good idea to get tax advice before you make a significant purchase of capital assets.  If purchasing the property will have unintended consequences, it might be better not to make the purchase at all.