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Estates & Wills & Trusts

Time to abolish Ontario's perpetuities law: Hull

Moves by other provinces to abolish or replace perpetuities laws signals that it’s time for Ontario to reform its estate legislation, Toronto estate lawyer Ian Hull tells AdvocateDaily.com.

The Alberta Law Reform Institute (ALRI) recommends the province abolish the complex statute devised in Britain in the 17th century to prevent landowners from tying up properties for generations. That province’s recommendations follow similar laws being repealed in Nova Scotia, Saskatchewan and Manitoba, says Hull, co-founding partner of Hull & Hull LLP.

"The Rule Against Perpetuities (RAP) was established to limit an individual from ruling from the grave forever," he says. "The trend is to move away from this — with good reason for it — and Alberta is just picking up on the trend.

"The English Chancellor Courts imposed perpetuities limitations to determine how long a gift can survive," Hull explains. "If you wanted to put $100 in trust it could only continue for as long as the life of the individual plus 21 years."

He says the changes came on the heels of the First World War as governments needed tax revenue, and forced the 21-year signpost to allow taxes to be paid on the trust.

"It allowed generations of control before someone was allowed to spend it or use," Hull says.

In its report, the ALRI says, "The 21-year deemed disposition rule in Canada’s federal income tax system states that the majority of trusts are deemed to dispose of and reacquire all trust property at fair market value every 21 years. The practical result of this rule is that, every 21 years, the trust is faced with a large tax bill."  

Hull lauds the move by other provinces.

"It's good to see progressive legislative moves are being made to eliminate this 'Witches and Arcane' rule," he says. Alternatives exist, such as charitable trusts and variations to trusts, Hull says.

Lawyers are circumventing the Perpetuities Act because both individuals and governments want their money sooner, he says.

"We should just get rid of it," Hull says. "Trust should be less draconian and controlling.”

Bequeathing property to create a park, for example, can be done through a charitable purpose trusts, he says.

"There's an existing mechanism for gifting to ensure that kind of legacy is maintained," Hull says. "Anybody who wants to look that far ahead is typically driven by philanthropy.”

The continued existence of RAP underlies the Ontario government's inclination to not institute meaningful change or reform in the estate field, he says.

"There have been some quick fixes in succession law but it's a 1978 piece of legislation, and most of the provinces have already reinvented their estate regulations," Hull says. Despite pressures from lawyers, he says he doesn't expect Ontario to amend legislation anytime soon.

"We have archaic legislation while all around us, provincially and in the U.S., laws are being amended," Hull says. "Everyone else appears to be moving forward while in Ontario we seem not to be prepared to take the political time and energy to allow this to be a priority."

He says amending legislation wouldn’t have to be a complicated process as Queen's Park could "cut-and-paste" existing laws from other provinces.

"The technical work has already been done," he says. "It's time for the Ontario legislature to look forward. This demonstrates to me the lack of attention to estate planning and elder issues, and we should start modernizing the language we're being governed by.”

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