LIFE AND DEATH PLANNING, NOVA SCOTIA

January 17, 2009

Nova Scotia Government Plucks more feathers from us chickens.

   In the year 2000 our Nova Scotia Government passed an amendment to the Probate Act which is printed as a note in the right sidebar. This was a change that did not create much publicity. If your estate includes any land this change could cost a great deal by increasing your legal fees, executors fees, recording fees and most importantly Probate taxes.
   Prior to this amendment if you devised (means gave in a Will) land (includes buildings) the land devolved (went to) whoever you named without further ado. After this amendment, no matter if your Will directly devised the land to a beneficiary, it goes to your Executor to be conveyed to the beneficiary. This means your lawyer will need to prepare a Deed, may have to migrate the land (another sad tale), then register the Deed. That's several hundred dollars, probably $300 - $1,000.
   That is just the start of it. Then the Executor is entitled to an additional 5% commission on the value of the land, and the legal fees are increased because legal fees are based on a percentage of the total estate. If you have land, with or without a house, worth $100,000 the additional probate taxes would be about $1,500 and legal fees of $500 - $3,000 or more based on the total value of your estate.

   Probate fees were calculated on the basis of a government providing a service and were quite moderate. Then the government increased the fees and called them a tax. The Supreme Court of Canada decided that if they were taxes they had to be amended by the legislature instead of by regulation. So now probate taxes are in effect Succession duties. How much are they? There are some minor adjustments to the rate for the first few hundred thousand dollars of the estate and then were and are as follows: 1990 - 0.3%; 1995 - 0.5%; 2000 - 1.2%; 2005 - 1.385%; 2007 - 1.479%; 2009 - ?; 2011 - ?. These tax rates are now raised, supposedly, based on the rate of inflation (?). This means that when your probate tax rate is increased it will be applied to your assets which have probably increased in value from inflation. This is a double application of tax to the same assets subject to the same inflation.

   In 1972 we had the benefit of the Carter Commission (federal) that decided that a buck was a buck. It sounds good and was the basis of eliminating Federal Succession Duties (Part of which were paid to the Provincial Government) in favor of a Capital gains tax. Of course, a buck was not a buck because capital gains were taxed on the basis of 50% of the gain. The starting date for this new capital gains tax was in 1972. All assets owned that year that could have a capital gain were deemed to have a "Valuation Day" value. That determined the "adjusted base value" for those assets. New assets had an adjusted cost value of their actual cost.

   Our Provincial Government didn't like that so they passed a Succession Duty Act that survived for a few years. This Act provided that before any Deed could be recorded a Succession Duty release had to be attached to the Deed or the Deed was void. Lawyers try to avoid making things void, but our government thought it was a good idea. Do you suppose the members of the Legislature actually do anything? As a result, so many void Deeds were recorded that a special Act had to be passed to fix the problem.

   In a marriage, or where a couple are cohabiting, the death of the first partner usually results in the payment of RRSP and RRIF to the surviving spouse. These funds, if the spouse does not spend them, are subject to income tax on the death of the spouse. No allowance or deduction for the tax to be paid is allowed to reduce the gross value of the spouse's estate. Probate Tax is thus assessed on the income tax paid under the spouses Will. If these funds are significant and it is likely that the spouse may have a substantial amount still in the RRSP or RRIF on the spouse’s death, then designating Trustees as the beneficiary and having a trust document directing who to pay or hold the money may save Probate tax.

   The same may apply to insurance proceeds which are tax free if paid to a named beneficiary but not tax free on the death of the beneficiary, if they have not been spent. Have the proceeds paid to trustees to distribute on the death of the beneficiary, then no Probate tax.

Comments

NOTES: Devolution of real property

46 (1) Notwithstanding any will, on the death of a deceased person, all real property that the deceased person owned immediately before the death of the deceased person for an interest not ceasing on the death and without a right in another person to take by survivorship devolves to and is vested in the personal representative of the deceased person as if it were personal property.
(2) For the purpose of this Act, the administrator of the estate of a deceased person is deemed to be administrator as if there has been no interval of time between the death of the deceased person and the grant of administration.
(3) A testator is deemed to have owned, immediately before the testator's death, any real property passing under any gift contained in the testator's will that operates as an appointment under a general power to appoint by will.
(4) The personal representative of a deceased person is the representative of the deceased person with respect to the real property as well as with respect to the deceased person's personal property.
(5) A grant may issue in respect of real property only, although there is no personal property.
(6) Subject to the powers, rights, duties, and liabilities mentioned in this Act, the personal representative holds the real property as trustee for the persons by law beneficially entitled to the real property.
(7) Where any part of the real property of a deceased person vests in a personal representative under this Act, the personal representative, in the interpretation of any Act of the Legislature or in the construction of any instrument to which the deceased was a party or under which the deceased is interested, shall, while the estate remains in the personal representative, be deemed in law the deceased person's heir in respect of such part, unless a contrary intention appears, but nothing in this Section affects the beneficial right to any property or the construction of words of limitation of any estate in or by any deed, will or other instrument.
2000, c. 31, s. 46

LIFE AND DEATH PLANNING, Nova Scotia

This page is not necessary for your planning. It is just a RANT about our government!

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