How to apply to CRA for a tax clearance certificate

I get dozens of emails and comments asking how and when to get a Tax Clearance Certificate from Canada Revenue Agency, so here is a bit of help for those of you with that request. I'm attaching a link to CRA's page that gives information about the clearance certificate, the form you need to fill in to get one, and a guide to preparing tax returns for a deceased person. It's even got a list of exactly what you need to send to them along with your form to get the clearance certificate. Click here to get to all these goodies. I'll put the link in the "interesting links" section of my blog for your future reference.

7 money afflictions from inherited wealth

Inheriting a ton of money would just make things so much better, wouldn't it? Life would be easier, and worry free, right? Apparently not always, according to author Judy Martel in an article in www.bankrate.com. In the article, Ms. Martel talks about seven problems or afflictions that commonly occur when people inherit money. Click here to read it.

Can you see your children becoming afflicted by any of these? If so, you should speak with your estate planning lawyer to discuss distributing your children's inheritance to them in ways that might be more helpful to them. Ask for ideas. I always tell my clients that they don't have to know the answers before they come to see me; they just need to know their questions.

Attached image from www.dreamstime.com.

Secret millionaire left fortune to charity

Jack MacDonald was a secret multimillionaire. He lived quietly and humbly, dressing frugally and using public transportation. People liked and respected him, none knowing that he had such a huge amount of money stashed away. In fact, he was known for his frugality. When he died recently, he left $187,000,000 among three American charitable organizations. To learn more of Mr. MacDonald's story, click here to read an article from www.huffingtonpost.com.

By leaving these charitable gifts, Mr. MacDonald is going to touch the lives of thousands of individuals. If you are leaving any amount to charity in your will - and it doesn't have to be $187,000,000 to be important to that charitable organization - make sure you describe that charity properly in your will. Take the time to look up the exact name, or even the charitable registration number of the organization.

I recently saw a will in which a gift of money was being left "to cancer". By checking the Canada Revenue Agency database of registered charities, I saw that several dozen organizations would qualify as potential recipients of the funds. When the description in the will is not specific, you're just asking for a legal fight over who is going to receive your gift. At the very least, your executor will have to approach the court for direction on who to pay the money to.

A gift to a charitable organization in your will is a wonderful gift that you should feel good about. Do it properly so that the recipients are thanking you, not blaming you for a legal mess.

Executors and the even-hand rule

As a follow-up to my recent post called "The executor's challenge", I would like to look a bit more closely at the executor's duty to remain impartial between beneficiaries. In law, this is known as the “even-hand rule”. Even when a trust is written so that the executor has a lot of discretion, he or she must remain impartial between the beneficiaries of the estate.

This sounds simple in theory but in practice, remaining impartial becomes a swamp of suspicion and complaints by beneficiaries. Some complaints are about things about which have very little substance. For example, beneficiaries often complain that the executor chose a lawyer who is friends with one of the beneficiaries (not the one doing the complaining, of course).

Other complaints have more merit to them. Beneficiaries frequently complain that an executor allowed one of the beneficiaries to go into the family home and take items from it without affording the same opportunity to the rest of the beneficiaries. A variation on that complaint is that the executor allowed one beneficiary to drive the deceased’s car or live in the deceased’s home. Then of course there are the larger complaints that the estate itself is being unfairly distributed.

An executor must realize that not only must he or she be scrupulously fair, but he or she also must be seen as being scrupulously fair.

An executor should also be aware that the even-hand rule applies where there is a trust set up for one beneficiary, with the remainder of the trust going to a second beneficiary on the death of the first. This is often seen in blended families where assets may be held in trust for the deceased’s spouse, with the remainder of those assets going to the deceased’s children on the death of the spouse. It is also seen in other situations.

The even-hand rule says that the executor has to be impartial between the first beneficiary (in this case, the spouse) and the second beneficiaries (the children). This is pretty tricky, especially if the trust is written so that the executor has a discretion in how much to pay or give to the spouse during his or her lifetime. You may find that the spouse is unhappy with the amount the executor is supplying from the trust, and that he or she will take the executor to court to force him or her to pay more. On the other hand, if the executor is too generous, he or she may upset the secondary beneficiaries (the children) who may complain that the executor is unfairly using up their inheritance.

An executor who administers a will with a trust like this must read the wording of the will carefully. Lawyers have been aware of the even-hand rule for many years, and with any luck, the trust being administered will mention how to deal with the rule. Lack of specific mention of the rule in the will means that the executor is bound by the even-hand rule.

The obligation to remain impartial between beneficiaries does not in any way mean that an executor may change the terms of a will when that will gives more to one beneficiary than to another. An executor simply does not have the legal authority to decide that the distribution should be varied. Adhering to the even-hand rule means giving everyone what the will says they are to receive, without imposing the executor's personal opinion about who should get what. An executor who decides to make the deceased's will "more fair" by changing who gets what is in direct violation of the even-hand rule.

The best way for an executor to stay on the right side of this rule is to follow the instructions in the will.

The executor's challenge

An executor is required by law to be neutral among beneficiaries. How far does that extend? What if the will clearly favours one beneficiary over another? Will the court remove an executor if he favours one over the other? These questions were explored by Marg Bruineman in a recent article in Canadian Lawyer Magazine. I was interviewed for it, as were several other lawyers. Click the link below to read the article.

http://digital.canadianlawyermag.com/issue/182469/46