Lack of inheritance tax is making inequality worse, think-tank study suggests

A group called the Canadian Centre for Policy Alternatives (CCPA) has been looking at the question of inheritance tax. Specifically, they have noticed that Canada is the only G7 country without an inheritance tax and they suggest that perhaps we should have one. The idea is that a tax on big inheritances would help even out the disparity between the financial "haves" and "have-nots" in Canada. The additional funds generated by this tax on the wealthy would allow the country to provide services with less pressure on those of more modest means.

The spokesperson for the CCPA says that the real target of an inheritance tax, if one were ever to be implemented, would be the super-rich who did not earn or build their wealth - in other words they did not work for it, create a business that earned it, or even wisely manage and grow a modest fortune into a large one - but simply inherited it. To read a story about the CCPA's views on why we should have inheritance tax, click  here.

Right now, the tax situation for an estate is (this is not an exhaustive study but it hits the high points):
- There is no percentage that goes straight to the federal government on all estates;
- Beneficiaries do not pay tax on what they inherit from an estate;
- Beneficiaries do not pay tax on life insurance proceeds;
- Passing on one home/property (up to a maximum amount of land) is tax exempt;
- Real estate over and above that first property is subject to capital gains tax only if it has increased in value; only 50% of the gain is taxable;
- Farmland can be exempt from capital gains tax as long as the new owners/family members will be farming as well (and other restrictions are met);
- Shares in privately owned companies are subject to capital gains tax if they have increased in value, and again only half of the gain is taxable. This can be deferred by rolling the shares over to a spouse;
- Every individual is entitled to a capital gains exemption of $800,000 for their lifetime that can be applied to shares of a small business, farming, fishing operations, etc;
- Funds in an RRSP or RRIF are subject to income tax of up to 40% of the funds but this can be deferred by rolling the RRSP or RRIF over to a spouse;
- The provinces take a probate fee or estate tax only if the will passes through the probate court, or if there is no will and someone applies to be appointed as administrator of the estate.

Every few years the subject of a possible inheritance tax gets tossed around a bit. I've certainly heard the topic raised once or twice before. So far, the Canadian government does not appear to be seriously considering the idea.

What do you think? Is it a good idea to slap an inheritance tax on the very wealthy? How wealthy  is "very wealthy"?  Or are estates taxed enough already?

How much money do you receive if a loved one is killed in an accident?

This is a topic I don't think I've covered before on this blog, mostly because it involves a type of litigation that I typically send out to other lawyers. However, the question of how much money (we lawyers refer to the amount as "quantum") is involved is a relevant question to family members left behind.

Loved ones left behind might be struggling financially due to the loss of the deceased's income. A small business might be in danger of folding without the deceased there to do the work. There are many such situations in which the family of a person who died a "wrongful death" might consider taking legal action to recover some money. The potential amount of the lawsuit is an important factor for the simple reason that in any legal action you have to weigh the potential benefit against the potential cost.

Recently I read an article in www.advocatedaily.com in which an injury lawyer laid out the three sources of money that become available when someone is killed in an accident. Click here to read the article ("Wrongful death Part 2"), which interviews Toronto lawyer Alison Burrison, The article is specific to Ontario so some of the material is going to be different in other provinces, but this should give you a good idea of where to start.

Spending $1 to recover a nickel: are there costs consequences?

A big factor in any type of litigation is the payment of legal fees. At the end of a trial or other court proceedings, the judge will usually make an order about who among the parties is paying the legal fees for whom. Perhaps everyone will pay his or her own lawyer. Perhaps the estate may have to cover some portion of fees. Or perhaps one party will be ordered to pay not only his or her own legal fees but that of the other parties as well. When that order is made, we call that having costs ordered against the party who must pay. Our general rule of court costs is that the loser of the case ends up paying for the fees of the winning party.

If you are involved in estate litigation, you know it's expensive. Your fees could be in the tens of thousands and perhaps even more. Your lawyer may already have warned you that your costs may be more than the asset you're fighting over.

This was the topic of an article I recently read on the blog of a Toronto law firm called Wagner Sidlofsky. Click here to read the article if you'd like more detail.

The question discussed in that post is whether the courts will punish parties for carrying on battles when the legal fees exceed the value of the asset they are fighting about. When that happens, you know that people are fighting on principle and perhaps are not being reasonable. The article took a look at what judges have been doing about costs in recent estate litigation cases.

While there isn't perfect consistency between judges, there is a trend towards judges refusing to allow costs awards that are above the value of the disputed asset, or even when not in excess of the value, are disproportionate to the value. The idea is to discourage parties from battling it out in the courts when there are better, cheaper, faster methods if only people would be reasonable.

The article talks about a case where the parties spent nearly $500,000 fighting over a $30,000 painting in an estate. The judge awarded the winning party most of what it wanted (about $200,000) against the losing party personally. This means the estate wasn't paying anyone's fees. The winner still had to absorb about a $100,000 tab. The loser had to pay $200,000 of the winner's fees plus about $250,000 of his own fees. I bet that made every single person involved sorry they ever laid eyes on that painting. Imagine having to pay $450,000 just because you wouldn't settle a dispute.

I'm pleased to see this trend. I've seen a number of cases where one stubborn person will hold up an entire estate, sometimes for years, refusing all reasonable settlement offers and insisting on putting everyone through the legal wringer for no good reason. Those people often get dinged with costs. I am happy to see cases we see where the judges make decisions not to punish people who have won a case because not only were in the right legally, but they made settlement offers and did all they could to avoid going to court. The people who insist on using the courts as their personal hammer despite all logic are exactly the folks who should be paying the costs.

Company says customer breached her contract by dying

In one of these truth-is-stranger-than-fiction cases, Paypal has written a stern demand letter to a deceased customer in the UK. Apparently, according to Paypal, dying is a breach of their contract and they are not impressed. Strangely, the letter wasn't written to the executor, the spouse, or anyone else who is actually alive; it was written directly to the deceased person. And it wasn't a mistake; the letter specifically says they were writing to her because they had received notice that she had passed away. The letter asks her to read the letter carefully.

Click here to see more about this story from one of my favourite blogs of all time, called Lowering the Bar.

Every now and then I receive mail addressed to deceased persons when I've contacted a company on behalf of an estate. I've received them from insurance companies, pension administrators, and banks. It never fails to astound me when I see mail addressed to Joe Smith that refers to the fact that Joe Smith is deceased.

I can only assume that the writers of the letters are simply too lazy to figure out who else might be an appropriate addressee. Sure, it's easy just to put Joe Smith's name on the letter and not bother figuring out who is actually going to receive and open it. This can cause a lot of confusion. Recently I assisted a widow who had received a letter from her deceased's husband's pension administrator. The letter contained requests for "your will" and "your identification" etc. The widow had spent quite some time collecting, photocopying, and sending in the requested items just to have it all sent back to her. She brought the letter to me and we realized that the letter was written to her deceased husband, not to her, and was asking for HIS will and HIS identification, not hers. What a waste of time!

It's also upsetting to receive mail addressed to a deceased loved one, which is something these companies might think about when they receive notice that someone has passed away.

While the letter from Paypal is funny in a way because of its sheer idiocy, there is a real person who sent that letter and should have had more sense.

What happens on death when you've been separated from your spouse for eons, but not divorced?

Many of you know people who have been separated from a spouse for years but who have never bothered to go through with the divorce. Sometimes I meet clients who tell me that they have been separated for 25 or 30 years or more without ever finalizing the divorce. When I ask why they have not simply signed the paperwork, I am usually told that "it makes no difference".

Perhaps it does not make a difference to your daily life right now. But does it make a difference when you pass away or if you develop an age-related dementia? Perhaps.

One way in which you or your estate might be affected by this lack of action is the existence of old documents that should have been updated years ago but never were. Let's face it, if you can't even get around to finalizing your divorce, you probably haven't bothered updating your will, Enduring Power of Attorney, or Healthcare Directive either. Are you okay with the ex you left 25 years ago inheriting a part of your estate? Does it suit you to have your ex making end-of-life or medical decisions for you? Do you know how the claims of a still-married spouse might impact a new partner in your life? If not, get going and update your documents.

Another reason that I've heard for not concluding a divorce is that it's "too much trouble". I mean, who wants to go through all of that fuss about dividing pensions and changing the title on the house and all that boring stuff? It will work itself out, right? Wrong. Those issues often continue to exist, but you've left the burden of figuring out your responsibilities on the shoulders of others. A divorce settlement would have covered things such as who would get a share of your company pension, who would keep the house, and who would maintain life insurance policies for the other.

Let's imagine that you meet someone and the two of you decide to become a couple. He or she is still married even though they've been separated for years. It's no big deal so you  move in, assuming that one day it will all get figured out. The years go by and you don't think a lot about the silly details such as whose name is on what. Then one day your partner passes away and suddenly you realize that you have been left out in the cold. Your partner's ex was never taken off the title to the house, even though you and your partner lived there and paid for everything. Now you've been given two weeks to move out so that the ex can take the house and sell it. You also find out that you won't be getting anything from your partner's pension or life insurance because all of that is in the ex's name too!

A lot of people in that position will put up a legal fight, if they can afford to do so, and so begins another lengthy, expensive legal battle that could have been prevented.

Not every situation is as dire as the example I've given here. Some provinces have legislation that allows a common-law spouse to inherit even when living with someone who is legally married to another person. Not all do, though. And even if common-law status will cure some of the issues I've raised in my example, it won't overcome things such as a title held in the name of a third party.

If you have been separated for years and have no intention of reconciling with your ex, just get the paperwork done so that others around you won't have to tidy up your affairs for you after you pass away.

Children write 'savage' obituary for mother who abandoned them

Unusual obituaries are a thing these days. Most of the time though, they are humorous or lighthearted, poking gentle fun at someone sorely missed.

The obituary for Kathleen Dehmlow, however, is anything but lighthearted. It was written by her children, Gina and Jay, who apparently she had abandoned. It says: "She passed away on May 31, 2018 in Springfield and will now face judgement. She will not be missed by Gina and Jay, and they understand that this world is a better place without her." The full obit appears in the attached photo, which was originally published in the Redwood Falls Gazette.


Obituaries were originally intended to announce to the community that someone had passed so that condolences could be sent to the family and so that people could attend the funeral. Over time they became summaries of the lives of the deceased, usually highlighting achievements and expressing the sorrow of those left behind.

What do we make of this new sort of obituary? Is this nothing more than a bitter airing of the family's dirty laundry by those who should have sought therapy? A symptom of the current trend of oversharing things that the rest of us would rather not know? Or is it an appropriately frank expression of feelings that need to be validated?

Rich Kids Are Counting on Inheritance to Pay For Retirement

I always find the idea of expecting an inheritance interesting to watch in terms of how that expectation makes people behave. As usual, I fall back on my own experience with my own clients, since I have now more than 30 years of dealing with people talking about inheritance from one angle or another.

This recent article from Bloomberg discusses the fact that the younger generation of wealthy families is counting on inheriting enough money to  have a comfortable retirement. Click here to read the article.

The article takes a sympathetic look at those wealthy youngsters, with a things-are-tough-all-over view of the situation. The only specific example given in the article as to why things might be "tough" for wealthy kids is student debt. In my experience, kids from wealthy families don't have student debt. That's almost exclusively the burden of those from less affluent families.

When I speak with families who are wealthy - either moderately so or extremely so - one of their main priorities is to ensure there are funds available to put the kids or grand-kids through university. That's so prevalent as to be almost universal. Even the parents who are concerned that too much money will cause their children to be unmotivated and lazy want to ensure that there is free schooling for them.

My will-planning process with clients always involves a review of their assets. There are plenty of good reasons for this including identifying potential tax liability, ensuring that joint property and beneficiary designations are aligned with the overall plan, and knowing what is to be passed to the next generation. Very, very few people mention that they expect to inherit anything. And yet, as I  mentioned, those same clients are determined to ensure that their own children are looked after financially.

I don't think the leaving of wealth within the family has changed much over the generations. I think what has changed is the current trend of living the high life without restraint, savings, or any sort of self-deprivation, and still expecting to have money to spend, otherwise known as affluenza.