The Role of Life Insurance in Estate and Tax Planning

The best way to increase the value of your estate is to minimize the tax implications arising on your death. On that basis, because of the potential tax savings, life insurance policies are useful estate planning tools that ought to be considered when planning your estate.

TAX BENEFITS
One of the greatest benefi ts of life insurance is that, upon the death of the insured individual, it provides a tax-free lump sum payment directly to the designated beneficiary(ies), tax free. Consequently, the insured individual knows that he or she provided protection and financial security to his or her surviving spouse or his or her surviving dependents.

Another reason to consider life insurance in the context of estate planning is estate preservation. The Income Tax Act provides that a deceased taxpayer is deemed to have disposed of each capital property owned by him or her  immediately before death for proceeds equal to the fair market value at that time. For tax purposes, that signifies a deemed a capital gain will be realized upon death.

In this context, life insurance may be purchased to provide the necessary funds to pay the capital gain, thereby  preventing the beneficiary(ies) of the estate from having to sell some of the assets to pay for the taxes.

Since the proceeds of the life insurance are paid directly to the designated beneficiary(ies), they do not form part of the estate and, as a result, probate tax is saved on that amount. It may be advantageous to transfer cash into life insurance and designate a beneficiary(ies) to avoid probate tax being levied on the value of these assets in the estate.

Life insurance should be considered a valuable estate planning tool as it can be cost efficient and will allow the insurance proceeds to be received tax-free by the designated beneficiary(ies).

TRUSTS
Th ere has been much debate as to whether one’s life insurance proceeds should be paid to their estate or to designated individual beneficiaries. Fundamentally, the issue is whether the proceeds are to be paid to a designated beneficiary,  thus avoiding probate tax, or paid to the estate in order to take full advantage of the graduated tax rates available to testamentary trusts on the income generated after death by the insurance proceeds.

The testamentary insurance trust may ultimately be the solution to that debate as it allows for funding of a trust using insurance proceeds such that the trust will also qualify as a testamentary trust for tax purposes. It is important to ensure
that the parameters of the testamentary insurance trust have been established prior to death in the deceased’s will in a manner intended to avoid probate tax. Also, care must be taken to ensure such trust meets the defi nition of a  testamentary trust and that it comes into eff ect in such a way so as to avoid probate tax.

If structured properly, the estate will avoid paying probate tax on the proceeds of the life insurance while the beneficiaries will benefit from the graduated tax rates of the testamentary trust on the income generated by the insurance proceeds. Th is arrangement may translate into considerable taxsavings for the beneficiaries.
THE ROLE OF LIFE INSURANCE IN A BUSINESS SUCCESSION PLAN
When developing a business succession plan, consider the use of life insurance as a source of funding to provide for the needs of the business upon the death of the business owner, a key executive, or shareholder. There are several key
tax advantages in using life insurance proceeds.

One of the main tax advantages is arranging for the life insurance proceeds to be payable to the corporation on a tax-free basis. As a result, the proceeds of the life insurance (over the adjusted cost base of the policy) will increase the capital dividend account of the corporation thereby allowing for the payment of tax-free capital dividends to the shareholders of the corporation or to the estate of the deceased shareholder. Depending on the Will of the deceased shareholder, the surviving spouse may receive tax-free capital dividends in a spousal testamentary trust allowing for income splitting.

Life insurance can also be an efficient means of funding the obligations under a buy/sell agreement found in a  shareholder agreement. The life insurance proceeds would be paid to the corporation thereby increasing the capital dividend account allowing for tax-free capital dividends to be available for purchase by the surviving shareholders from the deceased shareholder. If the shareholder  agreement provides for such a buy/sell agreement, the estate may also be entitled to claim the capital gain exemption on the sale of the shares to the surviving shareholders.

In order for this to occur, the shares must meet the definition of “qualified small business corporation shares” as defined in the Income Tax Act. If so, the estate would be eligible to receive up to $750,000 in tax-free shares. The business succession options set out above must be carefully implemented otherwise the business owner or the corporation might be assessed a taxable shareholder benefit by the Canada Revenue Agency.

It is not uncommon for a business owner to own the shares of a holding company which in turn own shares of the operating company. In those situations, there are a number of factual and tax considerations that must be considered in determining who will be the owner and beneficiary of the insurance policy; and which entity must pay the insurance premiums.

Life insurance may be used for reasons other than estate and business succession. Indeed, it may be possible to use some life insurance to fund the business owner’s retirement or for the company to offer some form of “supplementary executive retirement plan” to an executive person.

The success of your estate planning relies on a clear understanding of the rules of taxation upon death and the rules of taxation of life insurance. Seek professional advice when planning your estate, especially if you are considering implementing a business or succession plan with the use of life insurance, because an error could result in adverse tax consequences.

If you have any questions concerning estate or tax planning, please do not hesitate to contact me directly.

Sébastien Desmarais
LL.B., LL.L., J.D.
Associate, Tierney Stauffer LLP

This article is provided  as an information resource and is not intended to replace advice from a quaified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter  referenced in this document before making decisions. Any use of this document does not constitute a lawyer-client relationship. 

Accident Benefits – Housekeeping Case Review

This recent case from the Ontario Court of Appeal will no doubt impact greatly on claims for housekeeping expenses. No
longer will it be a simple case of determining the actual cost of replacing the services previously done by an injured party but will entail determining if a non-pecuniary award is in order.

The Ontario Court of Appeal observed that in evaluating housekeeping losses in a personal injury claim Canadian courts “have developed an unnecessarily complex approach” since Fobel v. Dean in 1991.

Background Information:

As a result of a motor vehicle accident Mrs. McIntyre suffers from chronic pain, fibromyalgia, depression and anxiety. In addition to her work outside the home, she did the bulk of the housework at home and was described by family members as a “clean freak” or a “neat freak.” Her housekeeping duties included all the cooking, vacuuming, dishwashing, cleaning, laundry, bed-making and gardening. Her husband assisted with other tasks, such as taking out the garbage, cleaning windows and heavier chores.

After the accident, Mrs. McIntyre experienced pain daily. She had to pace herself carefully and with pain she could undertake most of her housekeeping responsibilities. For the balance of those responsibilities, she relied on assistance provided by her family.

This case was released May 29, 2009. The Ontario Court of Appeal sought to avoid confusion in future cases where different scenarios of housekeeping losses arise and felt that it would be helpful if the jury can be specifically instructed regarding the type of loss at issue and the evidence in support of that loss. To this end the court classified three different types of housekeeping losses and the types of damages that they would attract.

Work left undone:

Where the plaintiff is unable to perform some or all housekeeping tasks, and where a third party [i.e. housekeeper] does not do the work in the injured person’s stead, work will be left undone. In that situation, the injured plaintiff will experience two sorts of intangible losses compensable in an award of non-pecuniary damages.

First there is the personal loss to the plaintiff because the preaccident housekeeping would have contributed to his or her sense of identity in the same way an income-earning plaintiff would have perceive her or his earning to be a valuable contribution to the family’s financial health.

Second, where work is left undone, the plaintiff will be forced to live with the loss of the amenity of an orderly and  functioning home.

Work done by the Plaintiff with Difficulty:

A plaintiff may continue to undertake housekeeping but may experience pain or difficulty in doing so. Justice Lang wrote “He or she may be required to work more hours post accident to accomplish the same amount of pre-accident housekeeping.” If a plaintiff thus works “inefficiently” her or his non-pecuniary award would be increased to reflect any increased pain and suffering. To the extent the plaintiff ’s inefficiency also results in a less clean and organized household, this is the loss of an amenity that the award for nonpecuniary damages would also take into account.

Work done by Third Parties:

The law is well-established that where a plaintiff incurs a pretrial, out- of- pocket loss by hiring a replacement homemaker, the plaintiff may claim the reasonable replacement costs of the homemaker as special damages. In this case Mrs. McIntyre was awarded $60, 000 for damages for “past housekeeping inefficiency” and for past and future “lost housekeeping  capacity.”

If you have questions about personal injury or accessing accident benefits, please contact one of our personal injury lawyers at (613) 728-8057. You can also contact Donan Robinson directly at (613) 288-3215 or by email at drobinson@tslawyers.ca.

Ctation: McIntyre v. Docherty, 2009, ONCA 448

Donna Robinson
Paralegal, Insurance Claims Consultant

 

This article is provided  as an information resource and is not intended to replace advice from a quaified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter  referenced in this document before making decisions. Any use of this document does not constitute a lawyer-client relationship. 

Statutory Accident Benefits – Access to Justice Issues

Ontario’s proposed auto insurance reforms will no doubt cause a lot of discussion – from both a positive and a negative viewpoint. For the most part, the public will not understand what it means to have benefits reduced until such time as they are faced with paying out of their own pocket for medical treatment once the Statutory Accident Benefits are exhausted and treatment is not covered by OHIP.

Those who are injured in a motor vehicle accident through no fault of their own will be able to fund the treatment through private lenders and claim not only the cost of the treatment, but also the interest paid on borrowing the money.

The case of Bourgoin v. Ouellette et al. – New Brunswick Court of Queen’s Bench dealt with this issue. In this case a number of disbursements were being assessed. One in particular was the interest owed on a loan taken out by the Plaintiff from a company called Seahold Investments Inc.

To quote the case: “It remains to determine whether the interest charged by Seahold Investments Inc. constitutes a disbursement which is refundable to the plaintiff by the defendants, and if so, is a monthly compound interest of 2.4 % reasonable.”

Seahold Investments Inc. is a private corporation which provides temporary financing to victims of personal injury who are awaiting insurance claim settlements allowing them, for example, to keep their house, vehicle, and to care for their family.

This type of financing would also apply to legal costs and disbursements in lawsuits pending a settlement. This was the case in this matter. The interest rate charged is 2.4% compounded monthly. This is a very high interest rate compared to regular market rates however it is unlikely that regular financial markets would lend money under these circumstances.

Numerous cases were reviewed in this decision. The Plaintiff’s counsel argued that without the assistance of Seahold Investments Inc., his client would not have had the access to justice to which he was entitled.

Although various arguments were put forward by defense counsel, including that interest charges are not part of the refundable expenses since they come under the costs  of a contingent fee agreement between a lawyer and a client, the judge ruled that this interest was not interest charged by the lawyer to his client, but was in fact interest charged by Seahold.

The final decision was that the interest is claimable. To quote the judge “The only option which seemed to be open to him in order to have access to justice, claim his rights and obtain such a considerable settlement, was to get a loan from a financial institution able to support his allowable disbursements for the duration of the action. Seahold Investments Inc. was the  institution that agreed to do it, at a very high interest rate, but also at an elevated risk to itself.

It must be noted that the Bank of Nova Scotia did not want to take on the risk for a lesser amount.” With the proposed  changes to the Statutory Accident Benefits in Ontario, many plaintiffs will be faced with having to borrow money for  treatment once the $50,000 cap is exhausted. The new proposal reduces the medical and rehabilitation expense from the present $100,000 for noncatastrophic injuries to $50,000; however, the $50,000 now includes the cost of assessments.

Today many serious injury cases exceed the $100,000 cap without including the cost of assessments. In the case of serious  injuries, which do not meet the catastrophic designation, the $50,000 will be exhausted long before settlement is achieved.

The plaintiffs will have to pay for treatment out of their own pockets, which in most cases is not possible. They will therefore have to access private lending institutions in Ontario such as BridgePoint Financial Services and Lexfund who will  fund this treatment. In addition, when obtaining treatment outside the Statutory Accident Benefits legislation the health care providers will not be restricted by the hourly rates of the SABs and can charge full market rate.

So, in applying the Access to Justice reasoning in the Bourgoin case, the cost of the treatment and the interest charged  should be claimable from the defendant.  This will undoubtedly increase the settlements in tort actions.

If you have questions about personal injury or Access to Justice, please contact one of our personal injury lawyers at (613)  728-8057. You can also contact Donna Robinson directly at (613) 288-3215 or by email at drobinson@tslawyers.ca.

Donna Robinson
Paralegal, Insurance Claims Consultant

 

This article is provided  as an information resource and is not intended to replace advice from a quaified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter  referenced in this document before making decisions. Any use of this document does not constitute a lawyer-client relationship. 

Deadline and Limitation Periods

A limitation period is the period of time between the accident and when an action must be started or a notice given. These limitation periods are extremely important since, if you do not meet the timelines, then your right to recover damages might be lost.

After a car accident there are a few limitation periods to keep in mind. For instance, with respect to making a claim against your own accident benefits insurer, you should put them on notice within seven days. With respect to completing the accident benefits application, this must be done within 30 days. In order for you to sue your own insurance company for accident benefits, this must be done within two years of the denial of benefits.

The ultimate limitation period for suing the at-fault driver is two years from the date of the accident.

With respect to Municipalities, there are some very short limitation periods which apply. Specifically, a slip and fall on a sidewalk owned by a Municipality obligates one to put the Municipality on notice of the accident within 10 days.

The important thing to note, given the many different deadlines is that you should contact a lawyer immediately upon being involved in an accident to determine which limitation period applies.

If you have any questions concerning personal injury, or for your free initial consultation, please contact our Personal Injury Team at 613.728.8057 or by email at info@tslawyers.ca.

This article is provided  as an information resource and is not intended to replace advice from a quaified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter  referenced in this document before making decisions. Any use of this document does not constitute a lawyer-client relationship. 

You have just been fired. What can you do and what are your entitled to?

  If you are unionized, seek guidance from your union representative.  If you are not unionized, you may be entitled to notice or pay in lieu of notice (“notice pay”).

   Legislation called the Employment Standards Act requires employers to provide notice prior to termination in the amount of one week per year of service, to a maximum of eight weeks.  Under certain circumstances, you may also be entitled to severance pay.

   You may also be entitled to reasonable notice under common law, which is based on cases decided by the courts. The length of common law reasonable notice will be decided by looking at factors like your age, position, level of compensation, and the availability of similar employment.

   Your employer can provide you either with notice prior to termination or notice pay.  However, if you are terminated with just cause, you will not be entitled to notice or notice pay.  Just cause is a legal test which will be determined on a case-by-case basis.

   Your employer should provide you with a Record of Employment, either on paper or submitted straight to Service Canada online, so that you can apply for Employment Insurance benefits.

   A lawyer will be able to provide you with specific advice regarding your entitlements based on the facts of your employment and your termination. 

   You should see a lawyer as soon as possible in order to address any concerns you may have regarding allegations of cause or your entitlement to notice or severance pay.

     Sabina Veltri, Lawyer
     Tierney Stauffer LLP      
     sveltri@tslawyers.ca

This article is provided as an information resource and is not intended to replace advice from a quaified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter referenced in this document before making decisions.