National Advance Care Planning Day: Terminology Explained

By McLennan Ross Wills and Estates Team

Today is National Advance Planning Day in Canada. This day is intended to prompt the difficult conversation that most people tend to avoid for the other 364 days a year. There is a lot of confusing language out there regarding advance planning. This article seeks to clarify the terminology and provide some practical considerations.

Personal Directives

Personal Directives are sometimes referred to as “living wills”, “advance directives”, or “directives to physicians”. In Alberta, the official term is “Personal Directive”. It is a document that allows a person to designate an alternate decision-maker (called “Agent”) in relation to personal and health decisions. It may also set out specific wishes and guidelines that the person would like their Agent to follow when making decisions for him or her. For a detailed summary of Personal Directives, see here.

Goals of Care Designation

“Goals of Care Designation” is a medical designation/order made by a physician in regards to a patient. The Goals of Care will indicate the patient’s specific and general medical care intentions, preferred locations of care, and gives transfer opportunities for current and future care of a patient being treated in Alberta. It is a piece of short-hand communication to all members of a patient’s health care team about the patient’s intentions and wishes.

Goals of Care are discussed and created during the course of care and treatment, ideally the earlier the better. The Goals of Care will communicate to the health care team of the intended care level is for the patient. In determining this, the health care team consults with the patient, if he or she has capacity. If he or she do not have capacity, this is when the Personal Directive becomes important. The Agent designated in the Personal Directive will then consult with the physician regarding the intended care level. In those consultations and any decisions made accordingly, the Agent will be bound by what is set out in the Personal Directive.

There are three main categories in a Goals of Care (with subcategories in each)[1]:

1. Resuscitative (R): The focus is to extend or preserve life using any medical or surgical means. This includes, if needed, resuscitation and admission to the intensive care unit.
2. Medical Care (M) – Medical tests and interventions are used to cure or manage an illness as well as possible but don’t use resuscitative or life support measures.
3. Comfort Care (C) – The focus of care is to provide comfort to ease a person’s symptoms without trying to control the underlying illness.

Green Sleeve: Personal Directive, Goals of Care, and other documents

A “Green Sleeve” is a plastic pocket belonging to a patient that contains:

• Goals of Care Designation order, when one exists;
• Advance Care Planning Goals of Care Tracking Record;
• Personal Directive copies, if they exist;
• Guardianship Order, if one exists; and 
• “Expected death in the home”, if one exists. 

Practical Considerations

These are difficult, but important, topics to discuss with family members. Often people say that their family knows what they would want and forego a detailed conversation about illness and incapacity. However, when these circumstances do arise, family members are often stricken with grief and stress. Careful and considered decisions rarely come out of that kind of emotional state. That is why is best to set out what your intentions and wishes are in the Personal Directive. It alleviates the pressure for your family to “make the right decision” and ensures that your wishes are met, when possible.

In addition to the specific medical considerations you may want, you should also consider these practical matters:

1.  Whoever you name as your Agent may need to make decisions suddenly and urgently. It should be someone you trust but also should be someone accessible. Can they be reached in the middle of the night or mid-work day? Will they be available in Alberta to consult with your health care team? 
2. Consider the dynamics between your Agents (if multiple) or your Agent with other family members. Will the designation create additional stress? Will there be conflict over the decision-making? 
3. Remember that if you are naming your children to be your Agents that they are used to having you be their caretaker, meaning that they probably turn to you for the answers to questions they cannot figure out. It is very important to set out your specific wishes and intentions in your Personal Directive because children will feel the pressure of “making the right decision” more than most. 
4. Keep your Personal Directive somewhere that is accessible to your Agent (or give them signed Personal Directive). For example, if you are sent to the hospital in the middle of the night, your Agent will not be able to grab the Personal Directive if it is locked somewhere in your house or in a safety deposit box. 

 The McLennan Ross Wills & Estate Group would be happy answer your questions regarding your estate plans and estate matters. Please contact any of our group’s lawyers or our office.

---

[1] https://myhealth.alberta.ca/Alberta/Pages/advance-care-planning-goals-of-care-designations.aspx

More than One Will: The Issue of Revocation

By Katherine Hagan, Student-at-Law

A recent Alberta decision has addressed the issue of a Testator leaving two wills without either document containing an express revocation clause . In the decision Sokalski Estate (Re), 2019 ABQB 28, the Court was required to determine which document formed the Deceased’s last will, with wills being created both in 2011 and 2017. Ultimately, Justice Michalyshyn found that the 2017 will was the Deceased’s last will on the evidence before the Court establishing the Deceased’s intentions as a testator.

The parties, the Deceased’s children, disagreed on which of the Deceased’s testamentary documents constituted the last will. The Deceased had created three documents, dated March 6, 2011, November 1, 2016 and May 14, 2017, without ever revoking the prior documents. The parties did not dispute that all of the documents were authentic, valid and documentary in nature, and the parties ultimately agreed the latter two documents could be read together. 

The representatives of the Estate, the Deceased’s sons, argued that the 2011 and 2017 wills should be read functionally as one testamentary document. Alternatively, they argued the 2017 document should be read as a codicil to the 2011 will. The sons argued that only these readings gave effect to the intentions of the Deceased. Conversely, the Respondents , the Deceased’s daughters, argued that the Deceased was not the “type” to have multiple testamentary documents. Further, the Daughters argued that much had changed in the Deceased’s estate and relationships between 2011 and 2017, and so the documents should not be read together.

Ultimately, the issue facing Justice Michalyshyn was whether the 2017 will revoked the earlier 2011 will. The Court relied on its previous decision in Bates v. Oryshchuk, 2009 ABQB 688 to hold that a Court must examine the intention of the testator to determine whether the testator impliedly revoked an earlier will. In the absence of an express revocation clause, an earlier will is revoked only to the extent that it is inconsistent with a second will. However, where a subsequent will disposes of or intends to dispose of all the testator's property, the Court may infer that the testator has implicitly revoked the first will in its entirety.

The Court held that all parties relied heavily on speculation and opinion without being supported by evidence. Still, on the evidence before him, Justice Michalyshyn concluded that the Deceased intended for the 2017 will to be his last will and replace the 2011 will for three reasons. First, the 2017 will disposed of all of the Deceased’s assets. Second, there was no mention of the 2011 document within the contents of 2017 will and no evidence was before the Court that the documents should be read together. Third, the 2017 will was similar in form to the 2011 will – it dealt with executors, debts owing to the estate, specified gifts and residue in a similar manner to the 2011 will.

While the 2017 will did not contain an express revocation clause, Justice Michalyshyn held the revocation was implied by the Deceased’s intentions to the 2011 will. Additionally, Justice Michalyshyn found the two testamentary documents to be inconsistent with each other, as the 2017 will addressed changes to the Deceased’s assets and familial relationships. Therefore, the documents were not intended to be reads together.

This decision serves as a useful reminder for a Testator to expressly revoke previous wills to prevent a dispute on which testamentary document or documents is valid. Additionally, if the Court has to determine the intentions of Testator, the Court relies upon documents and supported evidence of statements of intention, particularly from uninterested third parties. If you have further questions about the express or implied revocation of a will or other estate issues, please contact any member of our Wills and Estates practice group.

Passing Down the Farm

By Michelle Fong and MaryAnne Loney

Farming is a fundamental part of our Canadian society and history. Entire generations of families have lived, thrived, and survived on the same land. However, farms today are increasingly large and complex operations. As such, various tools have been developed over the years to deal with one big question: How do I pass the farm down to the next generation when I retire?

This article will briefly discuss the options available for transferring farm property from parent to child while the parent is alive. 

Two major questions that a farming-parent should consider when transferring farm property to a child are: 1) When do I want the disposition to be effective? and 2) What are the tax implications on the disposition?

Transferring Farm Property to a Child

Generally, farmland values have skyrocketed over the last few decades. Land acquired decades prior by the parent has often doubled, tripled or more in value. This means, without proper planning, capital gains tax triggered upon the disposition can be significant.

The other issue is when should the disposition happen? There will be a deemed disposition on death, so the question really is whether you want to transfer the land upon death or sometime before death.

There are three options for transfer:

1. Fair market value disposition;
2. Section 73 rollover; or
3. a transfer to the child in bare trust.

 Fair market value disposition

A fair market value disposition occurs at, unsurprisingly, fair market value.  This triggers the full capital gains on the transfer. This means that the child who buys the land will then have an adjusted cost base (“ACB”) equal to the fair market value. 

However, the parent may be able to use his or her lifetime capital gains exemption (“LCGE”) to offset the capital gains tax. 

Farmers receive a $1,000,000 LCGE (compared to $883,384 (2020) for non-farmers) for dispositions on farm property (usually shares in farm corporation or farm land[1]).

For farm corporation shares, generally, throughout any 24-month period before disposition, more than 50% of the fair market value of the corporation’s property must be attributable to property that was used principally[2] in the course of carrying on a farming business in Canada in which the individual, his or her spouse or common-law partner, child, or parent (or beneficiary of a trust if the individual is a trust) was actively engaged on a regular and continuous basis.[3]

For farmland, if the land was acquired after June 18, 1987, the land must have been owned for any 24-month period before disposition by, generally, the individual, his or her spouse or common-law partner, child, parent (either owned directly or owned through a personal trust[4]). If the land was owned by a farm partnership, the partnership interests must be held by the individual or his or her spouse or common-law partner. We will refer to this person as the “Operator”. In addition to the 24-month ownership test, during any two-year period of ownership, the land must be used principally in a farming business, a farm corporation or a farm partnership carried on in Canada in which the Operator (or beneficiary, if Operator is a trust) was actively engaged on a regular and continuous basis. 

If the land was acquired before June 18, 1987, then there are two ways to qualify for the LCGE. The first option is if, in the year of the disposition, the land was used principally in the course of carrying on a farm business in Canada by the individual, his or her spouse or common-law partner, child or parent; or by a farm corporation, a farm partnership; or by a beneficiary of a personal trust[5] or by a personal trust in which the individual acquired the property. The second option is if the land was both owned and used principally by these same categories of persons or individuals in the course of carrying on a farming business in Canada in any 5-year period. 

It is important to confirm with a tax practitioner that your farm property qualifies for the LCGE before claiming it as the test is quite technical and may be complicated to apply in practice.

Section 73 rollover

A section 73 rollover is one in which the disposition of farm property is deemed pursuant to subsections 73(3) to (4.1) of the Income Tax Act to occur on a tax-deferred “rollover” basis. This means the land and farm property may be transferred at the ACB so the child inherits the same ACB that the parent had. There are no capital gains triggered on this disposition.[6]
 

In order to qualify for the tax-rollover under subsection 73(4) and 73(4.1) (farm corporation and partnership shares):

•  the child was a resident in Canada immediately before the transfer; and
•  the property was, immediately before the transfer, a share of the capital stock of a family farm or fishing corporation of the taxpayer or an interest in a family farm or fishing partnership of the taxpayer (as defined in subsection 70(10)).

 In order to qualify for the tax-rollover under section 73(3) and (3.1) (farmland):

• the property was, before the transfer, land in Canada or depreciable property in Canada of a prescribed class, of the taxpayer;
• the child of the taxpayer was a resident in Canada immediately before the transfer; and
• the property has been used principally in a farming or fishing business in which the taxpayer, the taxpayer's spouse or common-law partner, a child of the taxpayer or a parent of the taxpayer was actively engaged on a regular and continuous basis

Again, these seemingly straightforward requirements can be complicated in practice, so we recommend you confirm with a tax practitioner that the transfer will qualify if you intend to rely on the provision.

Transfer to the child in bare trust

The last option is for the parent to place the farm property in joint names with him or herself and the child. However, the child is a bare trustee, meaning that he or she has no beneficial ownership in the land until the parent(s) die. The parent(s), while alive, have all the control, pay the expenses, and reap all the benefits of the land. The disposition does not actually happen until the parent(s) die.  

At that point, provided the property qualifies, it is still possible to take advantage of the LCGE or do a tax-deferred rollover to the child.  

Other Considerations

When it comes to farms, there are many tools available to meet the unique challenges that farmers face. However, it is important to not let tax considerations lead your estate planning.  Farms are some of the most common types of property fought over in estate litigation, a process that not only wastes significant amounts of money, but also tears families apart. 

It is more important that your estate plan related to the family farm suits your family, not simply that it saves the most tax.

If you would like to discuss what options are available for your specific situation, we would be happy to meet with you. Please contact any member of our Wills and Estates or Tax practice groups.

---

[1] May also dispose of farm partnership interests, which is not discussed in this article.

[2] “Principally” means more than 50%.

[3] LCGE can also be used for farm partnerships and qualified small business corporations. However, for simplicity, we only briefly touch on some LCGE areas, such as farm corporations and farmland.

[4] If the land is in a personal trust or was from a personal trust, the ownership test applies to, generally, the same categories of persons (except if the land was from a personal trust, the ownership test cannot apply to the recipient individual’s spouse).

[5] As described subparagraph (a)(ii) of the definition of “qualified farm or fishing property” in subsection 110.6(1). The beneficiary or his or her spouse, common-law partner, child or parent.

[6] Note, you can elect to transfer at an amount above ACB as well.