Click HERE to view the latest issue of the HLA Journal.

Estates & Trusts 2021 Updates

By Jennifer Stebbing & Jaclyn Gates

February 2021

With the beginning of the New Year, there are several updates and changes coming into effect that Estates and Trusts lawyers ought to keep in mind and implement into their practice.

 

1. New Trust Reporting Requirements

Beginning in 2021, new reporting rules have come into effect for most trusts. The rules are intended to improve the collection of beneficial ownership information with respect to trusts and to help CRA assess the tax liability for trusts and its beneficiaries. Trustees and their advisors should be aware of the rules summarized below.

(a)    New Filing Requirement

Prior to 2021, a trust was only required to file a T3 Trust Income Tax and Information Return for a given year if it was active (by having tax payable or having made distributions during the year). A trust that has no tax payable or that had not distributed income or capital during the year was not generally required to file a T3 return. The new reporting and disclosure requirements apply to express trusts resident in Canada even if they were inactive or had no income during the year. The new rules mean that a trust that may not have previously had to file a T3 return, may now be required to do so.

 

For example, trusts used to hold a cottage, U.S. residence or vacation home, as well as trusts used to hold private company shares as part of an estate freeze, are trusts which have no income and previously did not file a tax return. These types of trusts are caught by the new rules and will now have to file a tax and information return.

(b)   New Annual Information Reporting Requirement

The new reporting requirement applies to all trusts that are required to file a T3 return. Beginning in 2021, and every subsequent year during the trust’s existence, the trustees must provide the name, address, date of birth, residence and taxpayer identification number for all of the following persons in relation to the trust:

  • ·        settlor;
  • ·        all current trustees;
  • ·        all beneficiaries (including contingent beneficiaries); and,
  • ·        any person who has the ability (through the trust terms or a related agreement) to exert control over trustee decisions regarding the appointment of income or capital of the trust (such as a protector).

This information will be filed in a new schedule to the T3 return.

 

(c)    Exceptions to the New Rules

The following trusts are exempt from the new filing and reporting requirements:

  • trusts in existence for less than three months at the end of 2021;
  • trusts that hold assets with a total fair market value that does not exceed $50,000 throughout the year if their holdings are confined to deposits, government debt obligations and listed securities;
  • certain regulated trust accounts, such as a lawyer’s general trust account; 
  • trusts that qualify as a registered charity or non-profit organization;
  • mutual fund trusts, segregated funds and master trusts;
  • graduated rate estates and qualified disability trusts;
  • employee life and health trusts;
  • certain government funded trusts;
  • trusts under or governed by registered plans such as RRSPs, RESPS, RRIFs and TFSAs; and 
  • cemetery care trusts and trusts governed by eligible funeral arrangements.

(d)   Penalties for Non-Compliance

Failure to file the T3 return or provide the schedule of additional information comes with penalties. If a tax payer knowingly fails to disclose, or if there is gross negligence, the penalty is the greater of $2,500 or 5% of the highest fair market value of the trust’s assets.

Existing penalties in respect of the T3 return will continue to apply.

 

(e)    Going Forward

Trustees should begin gathering the necessary information now to avoid being caught without the ability to provide the required information at the end of the 2021 taxation year should beneficiaries be difficult to locate or uncooperative.

 

Where appropriate, trustees should consider winding up trusts, such as those that are redundant or no longer serve a purpose, to avoid having to comply with the new requirements.

 

Trustees ought to seek professional advice to ensure that their obligations are met.  

 

2. Virtual Signing of Wills and Powers of Attorney

 

Pursuant to Ontario Regulation 458/20: Extensions of Orders, the virtual signing of Wills and Powers of Attorney provided for under Ontario Regulation 129/20: Signatures in Wills and Powers of Attorney has been extended until January 20, 2021 in Ontario.

 

Ontario Regulation 129/20 provides the following:

1.      The requirement pursuant to the Succession Law Reform Act for a testator or witness to be present or in each other’s presence for the making of a Will (or a Power of Attorney) may be satisfied by means of audio-visual communication technology, with certain restrictions.

2.      “Audio-visual communication technology” means any electronic method of communication in which participants are able to see, hear and communicate with one another in real time.

3.      At least one person who is providing services as a witness must be a licensee within the meaning of the Law Society Act at the time of the execution of the Will (or Power of Attorney).

4.      The signatures may be made by signing complete, identical copies of the Will (or Power of Attorney) in counterpart, which together shall constitute the Will (or Power of Attorney).

5.      For this purpose, copies of a Will (or Power of Attorney) will be considered identical even if there are minor, non-substantive differences in format or layout between the copies.  

 

3. Changes to the Rules of Civil Procedure and Updated Court Forms

 

On November 30, 2020, the Attorney General of Ontario announced changes to the Rules of Civil Procedure (the “Rules”) effective January 1, 2021. The key changes impacting the Estates and Trusts practice include:

(1)   Service by Email- The changes to the Rules allow for service of documents (other than originating documents) by email and allows court staff to communicate and send certified court documents by email.

(2)   Videoconference Hearings- Due to the COVID-19 pandemic, hearings have been successfully conducted by videoconference for months. The changes to the Rules encourage videoconference as the predominant way to conduct court attendances. The Rules will now impose cost consequences for any party who objects to a virtual attendance without good reason.

(3)   Virtual Commissioning- In person commissioning of affidavits is no longer required. In accordance with the Commissioners for Taking Affidavits Act, the Rules now recognize that this authentication process can be achieved through the use of any electronic method of communication that enables the commissioner and the deponent to see, hear, and communicate with each other in real time.

 

These changes to the Rules have also resulted in necessary revisions to the Rules of Civil Procedure court forms to allow for service via email and remote commissioning, including the following estate administration forms:

  • ·        Form 74.06- Affidavit of Service of Notice (Certificate of Appointment of Estate Trustee with a Will), effective January 8, 2021
  • ·        Form 74.07- Notice of an Application for a Certificate of Appointment of Estate Trustee with a Will, effective January 8, 2021
  • ·        Form 74.08- Affidavit of Execution of Will or Codicil, effective January 1, 2021
  • ·        Form 74.09- Affidavit Attesting to the Handwriting and Signature of a Holograph Will or Codicil, effective January 1, 2021
  • ·        Form 74.10- Affidavit of Condition of Will or Codicil, effective January 1, 2021
  • ·        Form 74.16- Affidavit of Service of Notice (Certificate of Appointment of Estate Trustee without a Will), effective January 8, 2021
  • ·        Form 74.17- Notice of an Application for a Certificate of Appointment of Estate Trustee without a Will, effective January 8, 2021
  • ·        Form 74.34- Registrar’s Notice to Estate Trustee Named in a Deposited Will of Application for Certificate of Appointment of Estate Trustee with a Will, effective January 8, 2021
  • ·        Form 74.35- Registrar’s Notice to Estate Trustee Named in a Deposited Will of Application for Certificate of Appointment of Estate Trustee without a Will, effective January 8, 2021

 

Jennifer Stebbing is a Partner with Ross & McBride LLP and practices predominantly in the area of estate planning, administration and accounting. She is an LSO Certified Specialist in Estates & Trusts law.

 

She can be reached at:

Ross & McBride LLP

1 King St W, 10th Floor

Hamilton, ON

L8P 1A4

Email: jstebbing@rossmcbride.com