2021 was one of the busiest years for me professionally. As we head into the New Year, I want to take a moment to review some of the lessons learned along the way.
1. Don’t Wait to Plan for the Inevitable
If the Covid pandemic has taught us anything, it is that none of us are invincible; life can change in the blink of an eye. This lesson applies equally to accidents, injuries, and diseases like cancer, which can take down a person in their 40s in 6 weeks’ time. While Zoom hospital signings in the middle of the night are possible now (if you have a kind lawyer who answers your midnight call), the land registry office does not allow registrations outside business hours. Get your affairs in order now, otherwise, it may be too late.
2. Not All Accountants Are Created Equal
Many people prepare their own tax returns or use tax preparers, like H & R Block to do it for them. While this may be fine for simple T1 returns for a salaried individual with basic investments, when it comes to terminal (final) returns and estate and trust returns, there is a significant difference between accountants and Chartered Professional Accountants (CPA). Executors - don’t be penny wise and pound foolish. Get it done right and get it done on time, or you could find yourself personally liable for interest, penalties and professional fees.
3. Attend to Tax Filings Right Away
The Canada Revenue Agency, like banks, courts, and other government bodies, have always had a reputation for processing tax filings, payments and documents at a snail’s pace. Like everything else in life, the covid pandemic has significantly increased timelines. For non-resident sellers of Canadian real estate, this can have detrimental consequences. If you have sold or are thinking of selling real estate, apply for a s.116 clearance certificate right away. If you don’t, you may find yourself out 25-50% of the sale price until CRA gets around to processing your application.
4. When Dealing with Land, Always Search Title!
Whenever you retain a lawyer to assist you with a real estate matter (not just transactional matters such as purchases, sales and refinances), always ask them to order and review the parcel register, which lists all documents registered on title and affecting your interest in land. Examples include survivorship applications, transfers to joint tenancy, and severances of joint tenancy. You never know what you will find; old private mortgages that were never discharged, for example, will be harder to deal with as time goes by. Individuals die and records get destroyed.
5. Don’t Sell and Buy in the Same Day – Always Get a Bridge Loan
The standard form Agreement of Purchase and Sale provides that the parties have until 6pm to complete the transaction. For clients who are selling and buying on the same day, this can create a logistical nightmare. If your sale does not close until later in the day, your lawyer may not have enough time to close your purchase. Likewise, if your sale closes early in the day, but the sellers of your new home don’t vacate the property until 5:55pm (or, as two of my clients experienced this year, after midnight) , you could find yourself paying movers to sit outside of the house until they can finally unload your stuff, or in the worst case have to pay to store it overnight. A bridge loan costs less than people think, and will save your sanity every time.
6. A Power of Attorney Does Not Give You Unchecked Power
Attorneys for property are fiduciaries, meaning they must always act in the best interests of the grantor of the Power of Attorney (POA), putting their own interests aside and never putting themselves in a position of conflict. Sometimes, financial advisors or accountants devise plans to reduce the overall tax burden on the family by shifting assets (and thus income) from the grantor of the POA to the grantor’s family members/the expected beneficiaries of the grantor’s estate on his/her death. While the Substitute Decisions Act (Ontario) allows attorneys for property to make gifts or loans to the grantor’s friends and relatives *if certain conditions are met* an attorney must tread cautiously in so doing. Financial institutions holding the grantor’s assets have a responsibility to the grantor, and if they feel the attorney is using the POA for an improper purpose or at the detriment of the grantor, they may decide that it is prudent and reasonable to freeze the accounts. If the grantor has a history of making large gifts or loans, or tax planning is being considered, have your lawyer address this specifically in the power of attorney. Further, understand that a POA does not give the named attorney unbridled power to do whatever they want with the grantor’s property .
7. Trusts and Funds – Sometimes More Trouble Than They Are Worth
As estate planners, we often use testamentary trusts and “funds” to provide for the management of assets by someone other than the beneficiary or to provide a pool of money for ongoing payments. While this type of planning has a lot of benefits in the right circumstances, I have come to realize that they are often impractical and in many situations, the benefits do not justify the costs and work involved. For example, there can be professional fees for filing tax returns and preparing estate or trust accounts, executor’s and trustee’s compensation for ongoing care and management, and delays in distributing funds to beneficiaries and winding up the estate. If you are planning on establishing trusts or funds in your will, consider providing your executors with flexibility to wind up the trusts early, or purchase an annuity to provide for the ongoing payments.
8. Language is Important
Lawyers like to use defined terms in legal documents because they have specific legal meanings, often derived from statutes and/or decades or centuries of jurisprudence. Be mindful when an opposing party changes legal terms in a document. For example, recharacterizing a relationship from that of a landlord and tenant to that of a licensor and licensee has a significant impact on the bundle of rights and responsibilities of the parties.
9. Nothing in Life is Free
The old adage, “you get what you pay for” is just as true for legal services as anything else in life. Not all professionals are created equal; ask questions, get personal referrals, and make sure you are comfortable with the lawyer’s knowledge, experience, and skill set, and ask about the scope of services provided. There is a significant difference between will drafting (a “scribe”) and holistic estate planning. Find the right professional to do the job. And as one of my dear clients learned the hard way, there is no such thing as a free will review. Unless, of course, that lawyer agrees to compensate you should they overlook a drafting error that costs you an asset valued at over $1M.
10. Treat People Well
While I certainly enjoy law as an intellectual exercise, at the end of the day, I love my job because I get to help people. Whether it’s planning for the worst-case scenario, assisting families with the loss of a loved one, helping clients with the purchase of a new home, negotiating with your landlord, or advocating for clients in a multitude of other ways, I am always mindful that people deserve to be treated with courtesy, candor and respect. I am truly grateful for the trust, loyalty and confidence of my clients. Wishing everyone a very happy and healthy 2022!
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