2009 Federal Budget Proposal For RRSP and RRIF Loss Carrybacks

Today's federal budget contains a proposal to allow decreases in the value of Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) after the annuitant's death, but before the funds are distributed to the beneficiaries, to be carried back and deducted against the inclusion of the RRSPs or RRIFs in the deceased annuitant's income in the year of death.

According to the Annex 5, Tax Measures: Supplementary Information and Notices of Ways and Means Motions:

The fair market value of investments held in a Registered Retirement Savings Plan (RRSP) at the time of an RRSP annuitant’s death is generally included in the income of the deceased for the year of death. A subsequent increase in the value of the RRSP investments is generally included in the income of the beneficiaries of the RRSP upon distribution. Similar rules apply in the case of Registered Retirement Income Funds (RRIFs).

There is, however, no existing income tax provision to recognize a decrease in the value of RRSP or RRIF investments that occurs after the annuitant’s death and before they are distributed to beneficiaries.

Budget 2009 proposes to allow, upon the final distribution of property from a deceased annuitant’s RRSP or RRIF, the amount of post-death decreases in value of the RRSP or RRIF to be carried back and deducted against the year-of-death RRSP/RRIF income inclusion. The amount that may be carried back will generally be calculated as the difference between the amount in respect of the RRSP or RRIF included in the income of the annuitant as a result of the death of the annuitant and the total of all amounts paid out of the RRSP or RRIF after the death of the annuitant.

This measure will apply in respect of deceased annuitants’ RRSPs or RRIFs where the final distribution from the RRSP or RRIF occurs after 2008.

In the last year, I have seen quite a few estates in which the value of RRSPs and RRIFs have declined along with the stock markets. This is a fair proposal, but has not as yet been passed.

Viberg v. Viberg

In a recent Supreme Court of British Columbia decision, Mr. Justice Chamberlist considered the provisions of the Estate Administration Act governing the distribution of intestate estates (for those who die without a will) when balancing the competing interests of a spouse and children in a Wills Variation Act dispute.

In Viberg v. Viberg, 2009 BCSC 27, two of Harland Viberg’s three children applied to vary their late father’s will. Harland Viberg died back in 1995. His will, made in 1979, left his estate to his wife, the plaintiffs’ mother, Sherrie Viberg.

Harland and Sherrie Viberg had separated about three years before Harland Viberg’s death, but he did not make a new will. They parted amicably, had agreed on how to divide the family property, but had not yet agreed on spousal support or concluded a separation agreement.

On his death, Harland Viberg’s estate was worth about $317,000 net of liabilities and expenses. Sherrie Viberg also received life insurance benefits of $382,500 as well as Canada Pension Plan survivor’s benefits.

Sherrie Viberg had some assets of her own when Harland Viberg died. She owned a house, assumed to be worth $184,000, and $72,000 in Registered Retirement Savings Plans.

The plaintiff children were in their mid-twenties when their father died. Their financial circumstances were modest.

Mr. Justice Chamberlist held that Harland Viberg had legal and moral obligations to his separated wife, and moral obligations to the plaintiff children.

The court held that Harland Viberg had not made adequate provision for the plaintiff children. Because his will did not make any provision for his children, Harland Viberg had not met his moral obligations to them.

Mr. Justice Chamberlist considered what portion the children would have received if Harland Viberg had died without a will. He wrote:

The Province of British Columbia, by virtue of s. 85 of the Estate Administration Act, R.S.B.C. 1996, c. 122, has, I believe, come to terms with what the legislature views as an adequate, just and equitable distribution where no will has been left by a testator.

Under section 85, Sherrie Viberg would have been entitled to the first $65,000 of the estate and one-third of the balance. The three children would have then shared two-thirds of the balance of their father’s estate. Based on the net value of the estate of $317,500, Mr. Justice Chamberlist calculated the share of each of the plaintiff’s at $56,090. He held that an appropriate award would be $50,000 for each of the plaintiffs, but reduced the share of the plaintiff Darren Viberg by $5000 to reflect some items Darren Viberg had received from his father’s estate.

The children are also entitled interest on their awards of 5% per annum from the first anniversary of their father’s death.

This is the first case that I am aware since the Supreme Court of Canada’s decision in Tataryn v. Tataryn Estate, [1994] 2 S.C.R. 807, in which the court has taken into consideration the legislation governing distribution for intestate estates when varying a will under the Wills Variation Act. Prior to Tataryn, the British Columbia Court of Appeal had rejecting using the intestacy distribution as a measure of an award under the Wills Variation Act. I think that the analysis of a testator’s legal and moral obligations in Tataryn does allow the court to consider the provisions for distribution of intestate estates. I also think the provisions for intestate distribution provide a reasonable measure for the court to consider in a case like Viberg, although I would not like to see courts mechanically apply the intestacy provisions to Wills Variation Act cases.

I note that the provision for the first $65,000 to the spouse reflect the economics of an earlier time. Bill 28 – 2008, which was introduced into the Legislative Assembly, but died on the order paper, would have increased the spousal preferential share of an intestate estate from $65,000 to either $150,000 (if the deceased has children or other descendants from another marriage or relationship) or $300,000 (if the deceased’s descendants are the descendants of both the deceased and the surviving spouse).

Zalopsky Estate

When she died on November 7, 1971, Mary Zalopsky had eight living children, three of whom, lived in her house at 5955 McKinnon Street, in Vancouver, B.C. In her will, she directed her executor as follows:

the said house at 5955 McKinnon Street, in the City of Vancouver, Province of British Columbia is not to be sold but is to be used, for the sole use and benefit, by my single, unmarried children which are living in it now namely, LENA ZALOPSKY, VICTORIA ZALOPSKY and ROSE ZALOPSKY. After the last of the said unmarried children would die, then it is my wish that the house be sold and the proceeds of the sale be distributed among my surviving children in equal shares.

Thirty seven years later, two of Mary Zalopsky’s children are still alive: Rose Zalopsky and Ann Engen. The house at 5955 McKinnon Street is still standing, but needs repair. Rose Zalopsky moved out of the house in January 2008, and into a care facility. Her affairs are being looked after by the Public Guardian and Trustee of British Columbia.

The Public Guardian and Trustee is a man capable of wearing many hats. The Public Guardian and Trustee was also appointed by the court to complete the administration of Mary Zalopsky’s estate as “Administrator with Will Annexed De Bonis Non” (someday I will write a post explaining what all of that means, but not today). The Public Guardian and Trustee is also the administrator of the estates of two of Mary Zalopsky’s now deceased children, Victoria Zalopsky and Joe Zalopsky. The multiple roles of the Public Guardian and Trustee in this case are not really germane to any of the legal issues, but is more of a fun fact.

When she made her will, Mary Zalopsky might not have considered the possibility that the last of the three unmarried daughters still alive would move out of the house. If she did consider the possibility, she did not deal with it in the will. Could the house be sold while one of the three unmarried daughters was still alive? If so, did the sale of the house terminate the trust for the unmarried daughters? Who ultimately receives the sale proceeds from the house? Only those of Mary Zalopsky’s children who are still alive, or do the heirs of the children who died after Mary Zalopsky receive a share of the proceeds of the sale of the house?

Madam Justice Ross was asked to decide these questions in Re Zalopsky Estate, 2009 BCSC 24. In interpreting a will in British Columbia, the court’s role is to discover what the testator, or will maker, intended when she made the will, on the basis of the wording of the will, and the surrounding circumstances at the time the will was made.

In light of the condition of the house, the fact that there were no funds in Mary Zalopsky’s estate to repair the house, Madam Justice Ross ordered that the house may be sold.

She found that Mary Zalopsky intended to create a life interest in the house for her three unmarried children. In other words, even if none lived in the house, as long as one of them were alive (as it turned out Rose Zalopsky), she would continue to have an interest in the house until her death.

But Madam Justice Ross also held that Rose Zalopsky could disclaim her life interest in the house, bringing the trust to an end. If she disclaims then the house, or proceeds of sale, could be distributed to Mary Zalopsky’s “surviving children in equal shares.”

This brings us to the most vexing question: who is entitled to the proceeds of the sale of the house when the life interest ends? If Rose Zalopsky disclaims her interest, are the proceeds divided into two between Rose Zalopsky and Ann Engen as the “surviving children” when the life estate ends? Or are the proceeds to be divided into eight equal shares, with the estates of the six children who survived Mary Zalopsky, but have since died, also entitled to equal shares? Does “surviving children” refer to all of the children who outlived Mary Zalopsky?

The wording of the will is ambiguous. It does not say what or whom the children must survive.

Madam Justice Ross applied a presumption, known as a presumption of early vesting. In this case the interests of the children in the house could arise either at the date of Mary Zalopsky’s death, or at a later date when the life interest of the last to die of the three unmarried children ends. The court applied the presumption that the interests of the children arose at the earlier date, being the date of Mary Zalopsky’s death. Accordingly, all of those of her children surviving at the date of her death were entitled to an interest in the house. Of course, only the three unmarried daughters got to live in the house, and most of the others who have died never received any funds from the house.

As a result, if Rose Zalopsky disclaims her life interest in the house (or the Public Guardian and Trustee disclaims the interest on her behalf), then the proceeds of the house will be divided eight ways. Each of Rose Zalopsky and Ann Engen will receive an eight, and the estates of each of the now deceased children who survived Mary Zalopsky will receive an eight, which will ultimately go to their heirs (which in an added wrinkle are in some cases the other siblings).

Designating Beneficiaries of Tax-Free Savings Accounts

In British Columbia you can designate a beneficiary of a Tax-Free Savings Accounts. If the beneficiary survives you, he or she will receive the funds as a designated beneficiary, instead of the funds passing under your will. This is similar to designated a beneficiary of a Registered Retirement Savings Plan.

Tax-Free Savings Accounts are new. Beginning January 1, 2009, Canadian taxpayers can contribute up to $5000 annually into a Tax-Free Savings Account. Interest and other income earned in a Tax-Free Savings Account is not taxable. Unlike Registered Retirement Savings Plans, there is no deduction for contributions.

In November, 2008, the British Columbia Government passed Bill 45, which included an amendment to section 49 of the Law and Equity Act. The amended section allows the annuitant (owner) to designate a beneficiary. The designation must be in writing and signed by the annuitant.

Ancillary Grants in British Columbia

In my last post, I wrote about resealing grants of probate from other Canadian provinces and from a few other Commonwealth jurisdictions in cases where the deceased was ordinarily resident outside of British Columbia, but had assets in British Columbia.

You can only “reseal” a grant of probate if the original grant was made in a place to which the Probate Recognition Act applies.

What if the Probate Recognition Act does not apply? For example, if the deceased was a resident in the Oregon at death, the executor may probate the will in Oregon. The deceased may have owned land in British Columbia. The Land Title Office will not allow the executor to transfer the land into his or her name on the basis of a grant of probate made by an Oregon court. Nor will the executor be able to reseal the grant in British Columbia under the Probate Recognition Act.

Fortunately, there is provision under the British Columbia Supreme Court Rules for an ancillary grant. Rule 61 (48) [since I wrote this post, the rules have been amended, and it is now Rule 21-5 (59)] says:

If probate or administration has been granted by a court of competent jurisdiction outside British Columbia and the grant cannot be resealed under the provisions of the Probate Recognition Act,
(a) a grant of administration, limited to the estate of the deceased in British Columbia, may be made to the attorney of the personal representative appointed by the foreign court, or
(b) an ancillary grant of probate or administration may be made to the personal representative appointed by the foreign court.

Rule 61 (49) [now 21-5 (60)] requires the applicant for an ancillary grant to file a copy of the will certified by the foreign court that granted probate or letters of administration.

The procedure is otherwise similar to a probate application. The applicant must file an affidavit of notice, and as well as an affidavit exhibiting an inventory of the deceased’s assets, liabilities and distribution. (See my post on probate applications.)

Resealing Probate in British Columbia

When I write about probating a will (or proving a will) in British Columbia in this blog, I usually assume that the person who died was a resident of British Columbia just before death. I assume that he or she had land only in British Columbia. Death, like life, is often more complicated.

The deceased may have lived in British Columbia, but owned land in Ontario, or California, or Peru.

Or, the deceased may have lived in Manitoba, but owned land in British Columbia.

The practical difficulty in these types of situations is that each province, or state or country has its own courts and procedures for dealing with probate. If you are an executor or other personal representative of the deceased, and you probate a will in one place, you may still have to go through a further court procedure in another place to deal with the deceased assets. This is true even among provinces in Canada.

In this post and the next, I am going to write about estates of deceased persons who were not residents of British Columbia at death. I will assume that the executor of the deceased’s will has received a grant of probate in the place where the deceased was domiciled at death, but must now deal with land or other assets in British Columbia. Although I refer to “probate,” much of what I write will also apply to “letters of administration” granted by a court appointing an administrator if there is no will or no executor willing to act.

In some cases, the executor may be able to deal with assets in British Columbia without a further grant. This may be true for shares of corporations or bank accounts.

But in other cases, including those in which the deceased was the sole registered owner of land valued at more than $50,000, it will be necessary for the executor to apply for a further grant in British Columbia.

If the original grant of probate in another Canadian province, the United Kingdom, and certain other members of the British Commonwealth listed in this Regulation, then the grant may be “resealed” in British Columbia pursuant to the Probate Recognition Act. The list does not by any means include all Commonwealth provinces and countries. For example, only two Australian provinces are included. Hong Kong is included in the regulation, but it may be that because Hong Kong is no longer a British possession, the Probate Recognition Act does no apply.

To reseal the grant in British Columbia, the executor makes an application in the Supreme Court of British Columbia. The procedures are set out in Rules 21-5 (61)-(68) of the Supreme Court Civil Rules. The application includes an affidavit of executor and an affidavit of notice, which are very similar to the affidavits filed in support of a probate application (see my post on probate applications). The main difference is that instead of filing the original will, the executor files a copy of the grant of probate certified by the court in the province or country where the probate was granted.

The affidavit of the executor must include an inventory of the deceased’s assets and liabilities, including those outside of British Columbia. The executor will be required to pay probate fees to the court. In calculating the amount of the probate fees, if the deceased was not ordinarily resident in British Columbia, the court registry should only include real estate and tangible personal property situated in British Columbia.

In my next post, I will write about cases involving deceased persons who were not resident in a place to which the Probate Recognition Act applies.

Caveats and the Wills Variation Act

As I wrote in my post yesterday, you can file a caveat with any Supreme Court of British Columbia registry before probate is granted if you intend to dispute the validity of a will.

What if you are not disputing the validity of the will, but wish to apply to vary the will under the Wills Variation Act? (In British Columbia, you may apply to vary a will on the grounds that adequate provision has not been made for you by your spouse, common-law spouse or parent.)

I have sometimes come across instances where someone making a claim under the Wills Variation Act files a caveat in a court registry. In my view, this is not appropriate. The purpose of filing a caveat with the court registry is to prevent the executor from getting a grant of probate without a trial to determine whether the will is valid. A Wills Variation Act claim is not a dispute over the validity of the will, and there is no reason for a Wills Variation Act claimant to delay probate.

Of course, if you believe that the will is invalid, and also wish to make an alternative claim under the Wills Variation Act to vary the will if the court finds that the will is valid, then you may file a caveat.

Caveats In Will Disputes

[This post no longer reflects the law and procedure. The Supreme Court Civil Rules were amended effective March 31, 2014 to replace caveats with a "notice of dispute," which you can read about here.]

In British Columbia, our rules permit someone who wishes to dispute the validity of a will to file a document called a caveat in any registry of the Supreme Court of British Columbia. If a caveat is filed, the Court will not grant probate of the will while the caveat is in force.

For example, suppose you were the beneficiary of a will your great-aunt made in 1985. She made a new will in 2005 at a time when she was not functioning well mentally. If you believe that she did not have the mental capacity to make the 2005 will, you can file a caveat in Form 75 of the Supreme Court Rules [as of July 1, 2010, Form 97 of the Supreme Court Civil Rules]. The person your great-aunt named as executor will not be able to immediately obtain a grant of probate.

You must file the caveat before the court has granted probate.

What can the executor do? She may file with the court a notice to caveator in Form 76 [amended to Form 98]. She must then deliver the document to you. You in turn, may file an appearance in Form 7 [Notice of Interest in Form 70]. If you do not file an appearance within the time limit set out in the notice, the caveat will be cancelled.

If you file an appearance to the notice to caveator, the person named as executor in the 2005 will must start a court action to probate the will in solemn form. The executor files the necessary court documents to start a lawsuit, and names as defendants all of those persons with an interest in whether the 2005 will is upheld. You, as someone with an interest in the proceeding, will then have an opportunity to oppose the 2005 will in court.

A caveat expires after 6 months, unless it is renewed.

The relevant rules are Rule 61(34)-(42) [21-5 (41-48)], which oddly enough come under the heading “Administration of Estates (Non-contentious),” as opposed to the heading for Rule 62 [21-4]: “Administration of Estates (Contentious)." Does anyone know why?

BC Laws Now Providing Up-to-date Legislation

The Queen's Printer is now providing up-to-date consolidated British Columbia legislation and regulations on-line for free. Although free on-line legislation and regulations has been available for years, it was not updated frequently until now.

The BC Laws homepage is here.

CLawBies

Steve Mathews of Stem has posted the winners of the 2008 CLawBies (Canadian Law Blog Awards). See the results here.

Alas, Rule of Law did not win. But I was honoured to receive a nomination. Thank you to Laurie Mapp (whose blog, Halo Secretarial Blog, did win a CLawBie) for the nomination. I also appreciate Garry Wise's mention in Wise Law Blog of Rule of Law in this post about the awards.

Thank you to Steve Mathews for organizing the CLawBies. I have found out about other legal blogs by reading the CLawBie nominations and awards, and its great to see legal bloggers get a pat on the back. Most importantly, this kind of thing builds a sense of community among legal bloggers in Canada, who often live far apart from each other, and have very diverse experiences. Its also fun.

Oh, and Happy New Year!