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Is trust return required?

I believe that the answer to my question is yes, but I know there are preparers that have a lot more knowledge and experience and I am hoping for an exception! My client died on December 31, 2018. She had a will which named her husband as executor and he was also the sole beneficiary of her will. The assets have been transferred to the husband by the investment firm, which had a copy of her will. The year end was a very busy time for me, but I thought that I read somewhere that a trust return was not necessary, if there was only one beneficiary because the assets could be deemed to have been transferred upon her death. However, I cannot find that reference now.

I prepared the T1 returns for the deceased and her husband and tried to get answers concerning the estate and in particular one letter he received from the investment firm, but he was still very much in the grieving process and was very hostile to my requests, so I thought it best to drop the questions until later. The time is now, but I do not wish to cause problems, unless required.

Any and all advise will be greatly appreciated.

John

Realistically, whether or not an estate return is required is going to ultimately be determined by whether there was any income earned by the wife’s estate after her death.

Examples of income earned after death could include CPP Death Benefit, income (dividends etc) earned on the investment account after her death, but before the account was transferred to the spouse. That might be dictated somewhat by what slips the investment firm issues for 2019, and to who’s name.

It is quite possible that you don’t need to file a T3 return.

I agree with SnowPlow and would add that it may be beneficial to file a T3 return for income earned up until the investments were transferred to the husband. The benefit of this would depend on the amount of tax that could be saved by being taxed at the lower rates afforded by the T3.

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All income that was earned BUT NOT PAID up to and including the date of death on all of her investments goes on a Rights and Things return. Use the T1 program for this return.

Income between date of death and transfer date are dealt with on a T3 return as snowplowguy has suggested UNLESS it took an inordinate amount of time for the transfer to occur (greater than 365 days) in which case it must go onto a T3 with her husband as the beneficiary.

The election to file the Rights and Things Return must be filed by the deadline. In this case, you have until Dec 31, 2019 to file.

This date is important.

See Subsection 70(2) for the details. The CRA will not extend this deadline.

Also note that, in this case, you would have a hard time arguing that income was received in 2018 after the date of death.

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Regardless of how long it took to get the names switched on the accounts, legally the husband owned them the moment after he died. He could choose to do a T3 for the time from her death until the name change, doesn’t have to. Unless it was a substantial amount of income it sounds like for his mental health just reporting it on his return might be the right thing to do.

To my eye the tipping point is your fees for preparing the T3 vs his tax savings. Unless his tax savings will outweigh the fee substantially, I would suggest to him that just putting the income on his return is the easier option.

It is, of course, ultimately your client’s choice though. If he does not choose to do a T3 the death benefit, and all other income received after her date of death simply goes on his return.

@jglass - it’s not about ownership, it’s tax planning. If there is significant investments, the income should go on a Rights & Things return to utilize tax credits available and save the surviving spouse some taxes.

As long as the tax preparer keeps fees reasonable, and there is no reason for them to be high since this is a super simple filing, you can save people lots of tax and create great word of mouth advertising for your business at the same time. I’ve saved people thousands with these filings and built at least 75% of my firm through them…

That is actually what I said:

Forcing an R&T return or a Trust return on a grieving spouse when the net [taxes minus fees] is not significant is not helpful either. Of course if you are going to save people thousands of dollars you push harder for it. But you present both options to the grieving spouse and let them choose.

This discussion seems to have morphed from the benefits of a T3 return to those of a Rights & Things return. I normally will put the last month’s CPP/OAS on a R&T return as well as dividend income declared but not received as of the date of death. The odd time I’ve seen some pension income also earned but not received until after the date of death. Since accrued capital gains and accrued interest to the date of death must be reported on the final tax return, the tax savings from a R&T return are normally modest, but still beneficial. I have, where we’ve known that a shareholder is terminally ill, advised the company to declare a dividend of about $40,000 that is not paid until after the shareholder passes.

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Hey Kevin, is accrued capital gains another term for deemed disposition?

John

Yes, that’s what I meant, John.

In this case, the R&T return can’t be made. The date of death prevents this return. The income and tax savings are irrelevant.

Sorry, Tim, what case do you mean?

The person died on December 31, per the original poster… there are no days following the date of death, therefore there is no opportunity for the amounts to be paid within the year after the date of death.

Per 70(2), “If a taxpayer who has died had at the time of death rights or things (other than any capital property or any amount included in computing the taxpayer’s income by virtue of subsection (1)), the amount of which when realized or disposed of would have been included in computing the taxpayer’s income, the value of the rights or things at the time of death shall be included in computing the taxpayer’s income for the taxation year in which the taxpayer died…”

My emphasis on the part that prevents this claim.

If the income would have been included in a ‘normal’ return, but was not received at the time of death, then it would have to be received after the date of death, but before the end of that tax year. As the person died on the last day of the year, there are no further days following the date of death.

This prevents a R&T return in this case.

You may attempt a R&T return, but you have absolutely no grounds to justify or even appeal the refusal of that claim.

https://laws-lois.justice.gc.ca/eng/acts/I-3.3/page-60.html#docCont

I agree. I just didn’t know which “case” you were referring to. That’s the problem with discussions that get into other areas.