The facts in this blog have been changed to preserve client confidentiality; however, both the real and fictitious facts illustrate the same tax and estate planning issues that arise in such situations and the importance of addressing them with clients and documenting that you have done so.
In the process of updating her will, an elderly client advised that she owns shares in a Canadian-controlled private corporation (CCPC). The corporation owns a large island in Ontario on which there are several cottages occupied by various families, each of whom have shares in the corporation. I asked the client for a copy of the shareholder agreement and other corporate documentation. I intended to review the agreement and other papers to confirm the corporation’s registration and to review any provisions relating to the transfer of shares during the lifetime of the client or upon death. The client was unable to locate her copy of the documents and instructed me to proceed without having reviewed them.
During our initial meeting, I advised the client that if she transferred the shares to her grandchildren during her lifetime, capital gains tax would be payable (assuming the shares had increased in value which she confirms is the case). If she transfers the shares as a gift to her grandchildren during her lifetime, there is a potential for double taxation. I referred her to a chartered accountant to review the tax issues and cautioned her not to transfer the shares without having obtained tax advice in advance.
I also advised that if the shares are to be transferred upon her death, she should have two wills — a primary will to deal with assets that must pass through probate and a secondary will to deal with non-probatable assets such as the shares in the CCPC. The probate fee savings could be considerable given the increase in cottage property values since she acquired the shares many years ago.
Despite my advice, the client declined to have two wills prepared. As far as I know, she has not consulted a tax accountant as I had recommended. As an estate and trust solicitor, this situation is of considerable concern. However, as the old adage goes, ‘you can lead a horse to water but you can’t make them drink’. All that’s left is to ensure our reporting letter confirms the advice given and that the client wishes to proceed anyway.
We are planning future blogs to discuss why probate is required and pitfalls of estate planning that focuses only on avoiding probate.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.
Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.
