My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, September 24, 2018

CRA Adjustment and Information Requests and Tax Update

Today, I provide an update on what I am seeing between my clients and the Canada Revenue Agency (“CRA”) as far as T1 Adjustment Requests, personal and corporate information requests and administration issues. I also provide a reminder relating to Deferred Security (Stock) Option Benefit balances.

T1 Adjustment Requests


A T1 Adjustment Request is probably the most often filed tax form with the CRA. You or your accountant would use this form to report a late received tax slip, an amended tax slip, information that was inadvertently missed, or anything else that should have been reported or claimed as a deduction and was not on your return.

The CRA is often inundated with these forms and last week I was told there could be up to a 6-7-month turnaround on the reassessment of a T1 adjustment; so keep this in mind if you are waiting for a response on a previously filed T1 Adjustment Request or filing a request.

I was also informed by a CRA representative, that the CRA can only process one T1 adjustment per taxpayer at a time (I was not aware of this) and thus, if you have an adjustment in progress, wait until it is resolved before sending in the second adjustment.

Information Requests


These requests continue to arrive on a frequent basis for my clients:

Personal Tax Requests

For personal tax returns, the information request which is essentially a request to provide back-up documents to substantiate deductions and credits claimed on your 2017 tax return, continue, as in prior years, to be typically for the following deductions and credits:

Medical receipts – I have noted in prior blog posts, make your life easier: ask your pharmacy and medical practitioner to print out one yearly receipt. That way you won’t need to provide 20 or 50 individual receipts when you receive a request.

Donation receipts – Typically for larger donation claims.

Tuition Tax Credit – This request is typically for the children of taxpayers attending University, especially when outside Canada. These claims often indirectly also affect the parents, as their child may have transferred up to $5,000 in tuition credits to their parent.

Corporate Information Tax Requests

These requests seemingly arrive daily for my corporate clients. Surprisingly to me, the majority of these request still relate to professional fees (I noted this in a prior blog post). Clients are still getting requests to support their professional fee claims as far back as 2015.

I can only presume the CRA has had some success in the last two years reviewing such claims. I am not sure exactly what they are finding, but I would guess personal type expenses such as professional fees for matrimonial or family law advice, will preparation and/or corporate organizations (that often need to be amortized rather than deducted on a current basis) are the type of expenses they are looking at. But that is just my own conjecture.

If you receive a brown CRA envelope in the mail, there is probably a  good chance you will be asked to provide back-up documentation for one of the above type requests.

Deferred Security (Stock) Option Benefits


I have noticed over the last couple years that some new clients have reminders on their Notice of Assessment that they have deferred stock option balances (from where they deferred reporting the stock option benefit on stocks they owned between 2000-2010). I don't want to get into the details of this, since the history is fairly complex. I just want to remind you that if you previously elected to defer stock option benefits, ensure you keep track of the benefits deferred (you should be filing a Form T1212) and what stock they relate; since if you sell the stock, the benefits need to be reported.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, September 17, 2018

Sacred Tax Cows

We are all aware that almost every level of government is strapped for funds and consequently, they often look at how they can raise additional monies through taxation. As funding needs become more desperate, a couple of my clients have asked me if they think any of the “sacred tax cows” will be sacrificed. Today I consider the political and tax risks a government would take if they attacked these “sacred tax cows”.

What tax cows am I talking about? I would suggest in Canada we have two “sacred tax cows” and one “tax cow” which is important but has been sacrificed in the past and will likely be in the future.

In my opinion, these tax cows are as follows:

The sacrificial tax cow:

1. The 50% tax inclusion rate for capital gains

The two sacred cows are:

1. The tax-free nature of your principal residence

2. No estate tax on death

The Capital Gains Rate


The capital gains rate prior to January 1, 1972 was nil. Aw, the good old days! From 1972 to 1988, the government only taxed 50% of any capital gains. For 1989 and 1990 the inclusion rate was changed to 2/3 of your capital gains. For the years 1990-1999, 3/4 of your capital gain was taxed. From 2000 onward, we have been at the current 50% inclusion rate (except for 8 months in 2000).

The above clearly reflects various governments do not see a 50% inclusion rate as a sacred tax cow. In fact, in 2017 I had a few clients sell stocks to lock in the 50% rate because there were rumours the Federal Liberals would increase the inclusion rate to 3/4. However, the inclusion rate was not changed.

I think no one would be surprised if the capital gains inclusion rate is increased in the future and I don’t think there is huge political risk in doing so, since most people paying capital gains have already been hit with higher personal and corporate taxes and are numb to various tax hits. In addition, a change in inclusion rates has been floated multiple times by different governments, so the shock component would not be high.

Tax-Free Sale of Your Principal Residence


Currently, when you sell your principal residence (“PR”) it is tax-free. Each family unit is only entitled to one PR exemption. In 2017, the Liberal government issued legislation that requires you to report the sale of your PR, even if it is exempt (see the second paragraph of this post). This measure was implemented to prevent some of the abuse in respect to the non-reporting related to PR (especially house flips) and situations where taxpayers thought the sale was exempt and in fact it was not exempt.

I would suggest the tax-free nature of a home is clearly a sacred cow to most Canadians and the political risk in making your home taxable would be immense. However, I can envision a government trying to move to a U.S model. In the U.S. the first $250,000 gain on the sale of a house is exempt from tax for U.S. citizens or $500,000 for spouses who are both U.S. citizens. The exemption mentioned is applicable when the following two conditions are met:

Ownership test: the taxpayer owned the property as his/her main home for a period aggregating at least two years out of the five years prior to its date of sale.

Use test: the property was used by the taxpayer as his/her main home for a period aggregating at least two years out of the five years prior to its date of sale.

These two tests can be met during different two- year periods. Also, for married couples filing joint returns, each spouse needs to meet the ownership and use tests individually in order to qualify for the $500,000 exemption jointly. The taxpayer would not be eligible for the exclusion if he or she excluded the gain from the sale of another home during the two-year period prior to the sale of his/her home.

Ignoring the technicalities of the U.S. rule, one ponders whether such a measure could possibly work in Canada if say the numbers increased to $500k and $1mill respectively, since that would likely eliminate the gains for most provinces other than maybe B.C and Ontario. Although, losing a significant number of voters in those two provinces would probably still not be smart politics. But if the exemptions moved to $1,000,000 and $2,000,000 the blow-back would likely be more muted. However, IMHO, I think in the end, a government would risk re-election if they put forth such legislation.

Estate Tax


The United States has levied estate tax for many years. The tax has been a political football with the exclusion amount from estate tax varying from $675,000 to $11,180,000. The tax was even repealed for one year in 2010, known as the year to die in the U.S. The estate tax has varied from 35% to 55%.

In most U.S. states, the annual personal income tax burden is substantially less than in most provinces. In addition, the U.S. has many more significant tax deductions such as mortgage interest; so, for U.S. taxpayers, they typically pay far less than Canadians in yearly tax but will typically pay substantially more on death. So the U.S. model is pay me less now and possible a whole bunch later.

In Canada, an estate tax would be pay me now and pay me later and the effective tax rate could end up being a ridiculous amount. For example, if you made a million dollars at the highest marginal rate in Canada you would have $460,000 left. Imagine a 40% estate tax on your $460,000 estate if you died. Your net estate would be only $276,000; so a total tax burden of 75% if the estate tax was 40%. Of course, this is simplistic and not necessarily realistic, but I use the example to demonstrate how massive the tax burden could be with a Canadian estate tax. In my opinion, I can see a government taking a huge political risk and imposing an estate tax with a large basic exemption; since they seem to feel, mid to high earning Canadians are a never ending source of tax dollars. 

In summary, I think we will see an increase in the capital gains inclusion rate at some point in the next five years. As for the two other sacred cows, I really hope no government is willing to eliminate the PR exemption or quantify the amount of the PR exemption and definitely not impose an estate tax. Let’s hope such taxes never see the light of day.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, September 10, 2018

Comments and Questions on my Blog Posts

I hope everyone had a good summer. I got in a fair bit of golf (including a boy's trip to Muskoka Bay Golf Club and a quick golf trip with my wife to Turning Stone in Verona NY, just past Syracuse - there are 3 excellent golf courses at Turning Stone). Unfortunately, my golf was totally erratic and I think at this point I need to accept that is me as a golfer.
Muskoka Bay Club Golf Course

Over the eight years of this blog, I have received numerous messages of encouragement from readers and/or thanks for writing a particular blog or even how I really assisted them in their financial lives. I have often told my wife that without all this positive re-enforcement I would likely have stopped writing years ago.

This weekend I got a couple questions/comments that I want to clarify and respond to. The first question was on why I keep saying “speak to your accountant" when someone leaves a question on a blog post I wrote. The second which I felt was quite rude, I will discuss at the end of this post.

Speak to Your Accountant


Since this blog began in September 2011, I have religiously answered comments on my various blog posts. I have tried my best to steer people in the right direction or provide direct answers. However, I often provide general direction and say, “please speak to your accountant”. I thought this comment was somewhat self-evident in that it means; either this is a complicated subject and I cannot answer it on my blog, or that I may have an answer that is more of a grey area and it is best not to answer on the blog as I know people at the CRA read this through my analytics.

This weekend a reader emailed my Gmail account about a couple answers I provided on questions they had left on my blog. They asked why I kept telling them to “speak to your accountant” and did not provide them direct answers. I thought I would clarify why I often answer speak to your accountant.

1. To answer any tax question, you need a full set of facts that often take a half hour meeting to gather. Thus, rather than misdirect, any question that has measure of complexity I try to provide some general direction but always say speak to your accountant.

2. In addition to the comments I answer on the blog, I get several requests each week to answer personal or corporate questions on my Gmail account and I just do not have the time or honestly the inclination when I have clients who pay for this advice.

3. Tax answers are not always black and white. I say speak to your accountant because of the grey areas. How I would answer a reader versus a paying client may be different based on the grey areas. I need to know the exact facts, whether we have a supportable position and the clients risk reward profile.

4. As I note in my disclaimer to each blog post “This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law".

Non-Tax Blog Posts


I also had another reader say that I should stick to only posting tax posts and not write "silly" posts such as last weeks “Are Accountants Really Boring”. As you may have guessed I did not take kindly to that comment and if I was not a professional I would have had some not publishable words, but I stuck to the don’t read the blog if you do not like it.

In some ways I would have understood the comment if it was framed in a politer manner. But tax posts are technical and take forever to write and must be reviewed for technical completeness. In addition, if I did not have the variety of writing on financial, estate, wealth and or whatever I just feel like writing, I would never had made it past three years.

That’s it for my clarification/rant.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, September 3, 2018

The Best of The Blunt Bean Counter - Are Accountants Really Boring?

This summer I am posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am re-posting a June 2012 post titled "Are Accountants Really Boring". That is a rhetorical question, please don't provide the answer. My psyche could not take the expected responses :)

I enjoyed writing this post as it was whimsical with some "attempted" humour. I have taken the liberty to play around with the original a bit by adding a couple updates. I hope you find this slightly amusing.

Are Accountants Really Boring


The joke goes like this. "When does a person decide to become an accountant?" Drum roll please. The answer…"When they realize that they do not have the charisma to become an undertaker." Or how about this one? Question: "What does an accountant use for birth control?" Answer: "Their personality."

With a reputation like that, Flo Rida will not be penning any rap songs called Wild One’s featuring accountants. So, are we accountants that boring or do we take an unfair rap?

Unfortunately, in general, I think the rap is probably warranted, although perception may be reality. How would us CPA’s be viewed if there had been a TV show called LA Accountant, instead of LA Law? Did you know John Grisham got his undergraduate degree in accounting? What if his books had been about accounting firms instead of law firms? Accountants would then be looked upon as cool dudes/dudettes with a conservative bent.

In 2016, we finally got top billing with the release of the Ben Affleck's movie titled, "The Accountant". Prior to seeing the movie, I was so excited. A movie about accountants, starring a good looking well known actor; finally, the world was going to see how cool accountants could be. Boy was I surprised when I found out that Ben's role in the movie was that of a freelance accountant for dangerous criminal organizations who is a stone-cold killer. However, upon reflection, maybe his role will give accountants a bit of a bad boy image and cause anyone to think twice before criticizing their accountant :)

Is it nature, or nurture? I think probably a combination of both. Many accountants by nature are cautious and conservative. Years of training to refine these character traits amplify the situation in non-professional environments. It would probably help if our dress style did not include pens hanging from our dress shirts, pencils behind our ears, or if we occasionally loosened our ties both literally and figuratively. I always had this underlying desire at a cocktail party full of accountants to run about the room and loosen all their ties.

Personally, although I have pride in my profession and my job, I know the boring stereotype precedes me and I try not to advertise the fact that I am a CPA upon initially meeting people. You can only have so many people at parties walk away after you tell them you are an accountant before you get a complex.

Classic Bean Counter
Unlike many accountants, I don’t advertise my profession with a vanity licence plate with the initials MG CPA. Although I am considering getting one saying “The BBC” [The Blunt Bean Counter]), but I am concerned everyone will just think I am just a British public television expatriate.

When I am outed as an accountant, I say I am a wealth advisor who will maximize your net worth and minimize your taxes, to make my job sound sexier. Although my naturally boring nature often gives me away, many of my other characteristics are non-accountant like and I enjoy surprising people when they find out this blunt, sometimes arrogant, sometimes confrontational and very occasionally humorous person is an accountant. My happiest social outings are not when a good-looking girl stares at me, but when someone says, “Wow, I would never have thought you to be an accountant”.

So, are any of my kind not boring? I did a search of famous accountants and came up with this list. For those of you old enough to remember the Bob Newhart Show, Bob Newhart the namesake and star was a former accountant. Now I am not sure Bob helps our cause. He was funny, but in a boring deadpan style, certainly was not stylish and definitely was no Chris Rock. 

To my surprise I found a musician who started life as an accountant. You figure any musician would break the stereotype as they lead crazy drug induced lifestyles. I found out Kenny G, a great saxophone player, is our exception. However, although Kenny is a great musician, I typically hear his music in my dentist's office and as far as I know, he did not have a Playboy Playmate as a girlfriend like so many rock stars.

In 2018 our athletic image got a boost when Scott Foster, an accountant by day became the Chicago Black Hawks emergency goaltender for one night. This story is detailed in this article.

I was about to give up hope that I could find an accountant who was not boring when a beacon of light shone and led me to Paul Beeston. Finally, an accountant with attitude! Beeston, who was a CPA with Coopers and Lybrand, was also the President and CEO of the Toronto Blue Jays and later the President and COO of Major League Baseball. Paul is a cigar chomping, fun loving, non-sock wearing CPA. Yes, there is one out there.

There you have it, proof that there is an accountant out there who does not fit the stereotype. Anyways, if you ever meet me, I will be easy to spot. I am the outgoing accountant who will be looking down at your shoes instead of staring down at my own shoes :).

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, August 27, 2018

The Best of The Blunt Bean Counter - A Family Vacation - A Memory Worth Not Dying For

This summer I am posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am re-posting a May 8, 2012 blog that I already re-posted in 2015 on the merits of a grandparent/parent taking their family on a vacation if they have the financial means.

The impetus to post this blog yet again, was a retirement webinar for small business owners I took part in earlier this month. During the webinar I discussed this topic, which reinforced to me, how valuable these trips can be for family bonding (taking the optimistic viewpoint, as opposed to the possibility that too much togetherness may not be good for some families).

A Family Vacation- A Memory Worth Not Dying For


I have written several times on the topic of whether parents (parent can be interchanged with grandparent wherever used in this post), who have the financial means, should provide partial gifts while they are alive, as opposed to just leaving an inheritance to their children or grandchildren.

I am a proponent of providing partial gifts while alive if you have the financial resources. My rationale is simple. Why not receive the pleasure of your gift either directly (such as a family vacation) or vicariously (by observing your children or grandchildren enjoy their gift such as a bike, car or even cottage).

The concept of a partial gift being used at least in part for a family vacation has substantial appeal to many parents. A family vacation is appealing because a parent can participate in the experience, the vacation more often than not, results in memories that last a lifetime for all the participants, and lastly, the parent has control over the gift.

I can attest personally to the benefits of a family vacation. Several years ago, my in-laws funded a Disney Cruise vacation for their children, their children's spouses and their grandchildren. This trip had a profound impact on the bonding of the grandchildren. In the case of my in-laws, the memories and enhancement of their grandchildren’s relationships was priceless and continues to this day.

Another very poignant and moving example of the gift of travel is the story of Les Brooks. Les, a Vietnam veteran, had unresolved issues relating to the war and as he states in this Princess Cruises travel blog.

One day during the course of a conversation, Les’ mother asked him if he could take a trip anywhere in the world, where would he go. After thinking about the question he surprised his mother by saying Vietnam. Unbeknownst to Les, she later booked him on a cruise to Vietnam. 

Sadly, his mother passed away before Les took the cruise and could not observe the impact this gift had on her son’s life; but I would surmise, she knew the impact it would have as she paid for the cruise. Les says this about the special gift his mother provided while alive; “I realized my mother’s gift had opened the door to many profound gifts. Through her kindness and intuition, she provided the way back to Vietnam and my healing. There, through the smiling acceptance and unspoken forgiveness of that little girl and the many other Vietnamese who welcomed me, I was able to put aside much of the guilt that had gnawed at me for so long."

While Les’ gift was not a family bonding vacation, it was a gift provided while his mother was alive, a trip that may never have occurred if Les inherited the money and spent it otherwise.

The concept of using a partial gift to fund a family vacation has become popular for both family bonding and financial reasons. As grandparent David Campbell says in a USA Today article (link expired), he is mostly motivated by a desire to make his children's lives a little easier. "It's getting to a point I'd like them to enjoy life," says Campbell, a regional sales manager. "And if they're going to enjoy it, they might as well enjoy it with me."

I have observed the family vacation phenomenon on several of my own vacations. Suddenly a horde of people arrive at the pool or restaurant (not necessarily a welcome site for other vacationers) with corny matching t-shirts, saying “Smith Family Vacation 2011” or some other similar sentiment. 

Although we all know that any large family gathering can veer off the rails, these trips often bridge the generation gap between offspring and grandparents and parents. I often hear people reference these types of family vacations when they have a family get-together or the topic arises over dinner with non-family members.

Personally, I would rather hear my grandchildren say or know they are saying "When I was young, my grandparents took me on the most amazing trip!", than, “I just inherited $25,000 from my grandparents, what should I buy with it?”

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, August 20, 2018

The Best of The Blunt Bean Counter - Is Your Estate Planning Horizontally Challenged?

This summer I am re-posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am posting a February, 2017 blog on whether your estate planning is horizontally challenged. Essentially this means; have you considered your children's relationships and rivalries in your will, so that your will can be easily administered without creating dissension or in-fighting amongst your children.

Is Your Estate Planning Horizontally Challenged?

In November 2011, I wrote a blog titled “How your Family Dynamic can affect your Estate Planning”. In that post, I proposed that you must consider vertical and horizontal issues in respect of your estate planning.

Vertical issues are decisions made by parents that will affect their children and potentially the way in which their children view them after death. These decisions would include choices made in your will such as who is the executor and how you distribute your assets and issues outside your will, such as which child you will pass the reins to run the family business.

Horizontal issues relate to the interrelationship of your children, such as sibling rivalries and past jealousies and perceived parental favouritism. These issues may be exacerbated by vertical decisions made by parents and thus I suggested any parent who does not consider these horizontal relationships runs the risk of creating a divisive wedge amongst their children.

Since I wrote this post, I have seen these horizontal issues play out a couple of times where parents estate planning included unequal distributions in their wills. I won’t provide specifics, but you generally see unequal distributions for three main reasons:

1. One child essentially becomes the caregiver of a parent (or parents) while the other children are "no shows" and the parent in essence “rewards” that child.

2. One child’s financial position is weaker than the other children, so the parent assists them with a greater inheritance and/or help while alive.

3. One child was always the black sheep.

Everyone is entitled to deal with their estate as they wish and there is no law that says you have to leave your estate equally to all your children or even leave any of it to them, as opposed to say charity.

However, if you are like most people and you wish to keep your wealth and assets within the family, you need to understand that you can’t always have your cake and eat it too. By this I mean where your children have a good relationship, you cannot expect that you will not put a strain on this relationship if you provide unequal distributions. In most cases, human nature causes jealousy or envy of some kind and can ruin a good sibling relationship.

In cases where your children do not have a good relationship, some parents, as they are in failing health, request that the children try and improve their relationship; yet the parent adds to the strained relationship by favouring one child over the other in their will (not that equalizing is any guarantee you will change your children's relationship).

For most people, this is not an issue. But, if you have unequal distributions in your will or estate planning, you may have to decide what your greatest priority is: providing one child with more assets or keeping harmony among your children. Accomplishing both may not be possible. Regardless, there is no assurance that if you bite the bullet and equalize your estate, that some obscure or trivial issue will not cause friction amongst your children.

There is no right or wrong answer here and you may say, children be dammed, I am distributing my assets as I see fit. I am just pointing out that you must be realistic and if your prime objective is keeping peace among your children, consider both vertical and horizontal issues.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, August 13, 2018

The Best of The Blunt Bean Counter - Is a Corporate Executor the Right Choice?

This summer I am re-posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am posting an April, 2011 blog on why you may wish to use a corporate executor, where you do not have a family member or friend capable of the task or you feel conflicts could arise among your family if one or two children are selected as executors.

You Have Been Named an Executor Series

The first blog in my executor series, discussed the concerns the Globe and Mail had in respect of the estate tax system and in particular, some of the issues surrounding the Paul Penna estate. The problems associated with Mr. Penna’s estate, highlight the importance of considering a corporate executor in certain circumstances.

In my second blog, I discussed the duties and responsibilities of an executor. These responsibilities can often overwhelm the appointed executor(s); which again leads back to today’s guest blog on whether a corporate executor is the best choice for estates that will have unsophisticated executors?

Today, in my final installment of the series I have a guest blog by Heni Ashley. Heni is a lawyer with over 20 years experience in the estate and trust industry, who brings a unique perspective to this issue. I thank Heni for her contribution.

Is a Corporate Executor the Right Choice? (By Heni Ashley)

I have read Mark’s two prior blogs and the Penna estate article with great interest. The Penna estate, in my opinion, was just the type of situation where a corporate executor should have been considered.

What exactly is a corporate executor?  Corporate executor services in Canada are available through incorporated trust companies, which are typically subsidiaries of our national banks.

Had Mr. Penna appointed a corporate executor, his bequests would have been carried out and the estate’s finances would have been tracked diligently and accurately.

In my opinion, a corporate executor provides an estate with the following:

1)    Professionalism, knowledge, expertise.  Knowledge in the area of estate, trust and tax law is invaluable, as is expertise in asset gathering and valuation, property management, investing and accounting.

2)    Impartiality.  A corporate executor can manage conflicting interests (i.e. second marriages), difficult personalities and bring an objective, unemotional approach to the estate administration.

3)    Availability.  The corporate executor is always there.  There is no need to worry about an out of town executor, or an executor dying or becoming incapacitated or physically unable to carry out the task. 

4)     Ease of administration.  There is no worry about unduly burdening a family member, friend or associate as the job of an executor can be difficult (depending on the size of the estate and the personalities of the beneficiaries) and time-consuming (depending on the nature of the assets).

5)    Continuity/permanence. A corporate executor can provide the continuity needed for certain family situations such as an ill or incapacitated spouse or minor or disabled children where there is a need for long term trusts and financial care.

6)    Cost efficiency.  The personal executor can charge the same fee as a corporate executor.  Often a fee agreement can be negotiated with a corporate executor at the time that the will is drawn.  Also, a corporate executor often eliminates the need to hire additional outside experts, which results in a cost savings to the estate.

Notwithstanding the above, had the deceased in the Penna case given thought to using a corporate executor, there are a few reasons why he might have decided against it:

1)       Impartiality (which can sometimes be viewed as indifference to family):  Some people are concerned that a corporate executor will be indifferent to the needs of the beneficiaries. This objection, however, can be overcome by jointly appointing a corporate executor together with a personal executor who can shed some light on the personal circumstances of a deceased’s family.  The two executors can then act as a check and balance against each other.  Another way to deal with this is to leave a detailed memo together with the will, explaining to all executors the reasons for certain bequests and discretionary powers (i.e. to help a child get established in business, to see a particular charity get off the ground, to provide the best of care for a sick spouse, etc.)

2)      Knowledge: A testator (the person making a will) may have a knowledgeable professional relative, friend or colleague who is willing to act as an executor (although Mr. Penna thought he had such a person).

3)      Cost: While a personal executor can take the same fee as a corporate executor, in many cases he/she will not take the maximum fee because he/she feels it is excessive (the fee can be as high as 2.5% of the assets coming in and 2.5% of the assets going out as well as a fee on income earned by the estate and a care & management fee).

I would suggest it does not make sense to engage a corporate executor in the following circumstances:

1.     Where the estate is very small,
2.     Where there are only a few well defined beneficiaries,
3.     Where the gifts are all outright (i.e. no long term trusts to be administered), and
4.     Where the assets are all very straightforward (e.g. one or two bank accounts or brokerage accounts, no real estate).

In summary, each situation is as unique as the individual parties involved.  Some beneficiaries are never happy no matter what, whether it is with their bequest, with someone else’s bequest, with the choice of executor, the manner in which the estate is administered …  Often childhood jealousies surface to complicate matters – families can be difficult and the job of an executor is rarely an easy one!

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.