TAKE THIS ESTATE PLANNING QUIZ

This true or false quiz will test your knowledge of estates. You may find some information worth sharing with clients.

1.                               In Ontario, marriage revokes a will.
2.                               In Ontario, divorce revokes a will.
3.                               Canadians are taxed based on citizenship.
4.                               Where more than two executors are appointed, they must act unanimously.
5.                               Testamentary trusts are taxed at the same graduated rates as individuals.
6.                               Common-law and legally married spouses are now treated equally for all purposes under the law.
7.                               The 21-year rule refers to the period of time income may be accumulated in a trust.
8.                               An executor of a Canadian estate who resides in the U.S. may be required to post a surety bond in order to act.
9.                               A beneficiary may not act as executor of a will.
10.                              A beneficiary may not witness a will.
11.                              As a general rule, Canadians are deemed to have disposed of their capital property immediately after death.
12.                              In order for an executor to take compensation, he or she must obtain court pre-approval.
13.                              An executor is responsible for filing the deceased’s terminal T1 return and any unfiled returns from previous years.
14.                              An executor may incur liability for distributing an estate too quickly.
15.                              An executor may incur liability for distributing an estate too slowly.
16.                              Ontario’s Estate Administration Tax (EAT or “probate fees”) is levied on the net value of the deceased’s estate governed by the will.
17.                              Holograph wills are valid in some, but not all Canadian provinces.
18.                              A non-resident trustee may affect the residence of the trust for income tax purposes.
19.                             If you die intestate, the government gets your money.
20.                             The capacity threshold for marrying is lower than for making a will.

ANSWERS

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1. InOntario, marriage will revoke a will. True, unless the will is made “in contemplation of marriage” (specific rules apply). But this is not the case in all provinces.
2. In Ontario, divorce revokes a will. False. It’s read as if the ex-spouse predeceased the testator. So unless the will states otherwise, an appointment as executor will be revoked, as will any gifts to
   the ex-spouse.
3. Canadians are taxed based on citizenship. False. Liability for income tax is based on a person’s status as a resident. A Canadian resident is subject to Canadian income tax on worldwide income.
4. When there are more than two executors that are appointed, they must act unanimously. True, unless otherwise stated in the will.
5. Testamentary trusts are taxed at the same graduated rates as individuals. True. But in the 2013 budget, the federal government announced that it would seek comment on “eliminating the tax benefits that arise from taxing testamentary trusts.”
6. Common-law and legally married spouses are now treated equally for all purposes under the law. False. InOntario, only legally married spouses are entitled to share on an intestate distribution.
7. The 21-year rule refers to the period of time income may be accumulated in a trust. False. The rule says a trust is deemed to dispose of certain types of property for proceeds equal to fair market value on the 21st anniversary of the trust and every 21 years thereafter. The rule does not apply to all trusts or to all types of assets held.
8. An executor of a Canadian estate who resides in theU.S.may be required to post a surety bond in order to act. True. Section 6 ofOntario’s Estates Act reads: “Letters probate shall not be granted to a person not resident inOntarioor elsewhere in the Commonwealth unless the person has given the like security as is required.”
9. A beneficiary may not act as executor of a will. False. There are few restrictions on who can act as executor, and beneficiaries are frequently appointed to the role.
10. A beneficiary may not witness a will. False. But the beneficiary may lose out. When a witness is a beneficiary under the will, or the spouse of a beneficiary under the will, the will may still be valid, but any gift to the witness/beneficiary is considered void.
11. Canadians are deemed to have disposed of their capital property immediately after death. False. A taxpayer is deemed to have disposed of all capital property for proceeds equal to fair market value immediately before death.
12. In order for an executor to take compensation, he or she must obtain court pre-approval. False. An executor may take compensation without court approval if the will provides for it (including an agreement incorporated by reference), or where all beneficiaries (who must be adult and competent) approve. In all other cases, court approval should be obtained.
13. An executor is responsible for filing the deceased’s terminal T1 return and any unfiled returns from previous years. True. Take the example of someone who died March 18, 2013. His executor would be responsible for filing his T1 return reporting for the period starting January 1, 2013 to the date of death. If the deceased had not yet filed his 2012 return, the executor would be responsible for filing it as well. The executor may also be responsible for any earlier unfiled returns; filing one or more T3 trust returns; foreign jurisdiction returns; and determining whether to file elective returns.
14. An executor may incur personal liability for distributing an estate too quickly. True. If an executor proceeds to distribute an estate prior to the expiration of applicable claim periods (and without first obtaining consent and releases from any potential claimants, such as the spouse, dependants and creditors), she may be personally liable.
15. An executor may incur liability for distributing an estate too slowly. True. If, for example, cash legacies remain unpaid one year from the date of death, the executor may be personally liable for interest.
16. Ontario’s Estate Administration Tax (or probate fee) is levied on the net value of the deceased’s estate governed by the will. False. EAT is calculated based on gross value of the deceased’s estate governed by the will. The only liability that may be deducted is a mortgage.
17. Holograph wills are only valid in some Canadian provinces. True. A holograph will is a document prepared entirely in the testator’s own handwriting (fill-in-the-blank wills do not qualify) and signed by him, with no witnessing required.
18. A non-resident trustee may affect the residence of a trust for income tax purposes. True. The residence of the trust is determined by the residence of the majority of trustees.
19. If you die without a will, the government gets your money. False. Your estate is distributed according to the applicable provincial formula. InOntario, an intestate’s property becomes the property of the Crown only if the deceased left no surviving spouse, child, parent, brother, sister, nephew, niece or next of kin.
20. The capacity threshold for marrying is lower than for making a will. True. For marriage, all that’s needed is a basic understanding of the nature of the contract. The test for testamentary capacity is quite stringent.