will-estate-planning

Last month during STEP’s CRA roundtable, tax authorities announced that multiple wills could be administered as a single estate, and qualify as a Graduated Rate Estate (GRE).

And while attendees were happy with the news that CRA would allow the use of graduated rates for people who have multiple wills, some state it could also cause more headaches for executors.

Why?

Often, practitioners would administer multiple estates if there were multiple wills, explains Kim Moody, director at Moodys Gartner Tax Law in Calgary. This would help in cases where executors didn’t get along. For instance, say the deceased had his children from his first marriage as his co-executors on his first will, and his second wife on his second will.

“In that case, if there were multiple estates, then the surviving second wife and the children wouldn’t have to deal with each other, assuming they didn’t like each other,” says Moody. “But today if they want to have graduated rates available during administration, they’re going to have to co-operate whether they like it or not.”

Also, the use of multiple estates allowed practitioners “to file multiple tax returns on death and get multiple uses of personal [tax] credits,” he says.

But that’s no longer the case. “It’s a consolidation of the rates—one GRE and one personal credit,” explains Moody. “So they either collaborate to get access to the GRE if there are multiple wills, or they’re going to have to decide which estate they’ll designate as a GRE to get graduated rates.”

What’s a GRE?

An estate can be a GRE if it’s a testamentary trust in the first 36 months after death. (If the trust still exists 36 months after the testator’s death, it no longer qualifies as a GRE and will generally be taxed at the highest marginal tax rate.) The first taxation year in which the designation can be made is the one that ends after 2015. An existing trust can qualify as a GRE starting in its first year-end after 2015, provided it hasn’t existed for more than three years since the person’s death.

A GRE’s benefits include:

  • access to graduated tax rates;
  • the availability of an off-calendar year-end to give more time for tax planning, especially in the first year after death; and
  • the ability to pay tax in a lump sum at year end, as opposed to paying installments throughout the year.

For more on GREs, read:

New complications for trust planning

Ottawa overhauls trust rules

More flexibility for estate donations

Originally published on Advisor.ca

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