[lakegirl]

Hello,

I am working on the accounting for the final distribution of an estate. The equities had a deemed disposition at the date of death when the market was higher than now (past the one year mark). The equities will be distributed in kind to the beneficiaries. I am fairly certain that the beneficiaries get to value their cost base of the equities at the deemed disposition value on date of death ... but I want to verify this is true? I do not want to trigger capital losses in the estate as there are no offsetting gains.

Can anyone verify if I am right in my assumptions?

[PeteP]

lakegirl, on Jan 30 2009, 12:31 AM, said:

Hello,

I am working on the accounting for the final distribution of an estate. The equities had a deemed disposition at the date of death when the market was higher than now (past the one year mark). The equities will be distributed in kind to the beneficiaries. I am fairly certain that the beneficiaries get to value their cost base of the equities at the deemed disposition value on date of death ... but I want to verify this is true? I do not want to trigger capital losses in the estate as there are no offsetting gains.

Can anyone verify if I am right in my assumptions?

No, you cannot prepare trust returns on the basis of assumptions, only in terms of the ITA, which does not consider "wants", unfortunately.

Nor can the beneficiaries choose the value they desire on which they get to be taxed, the ITA does that.

Perhaps you should consider the assistance of a colleague/tax accountant for the relevant tax returns.

In my view the executor has left it too late plan the maximum "best" tax outcome for the beneficiaries. Now it is what it is.

[lakegirl]

PeteP, on Jan 29 2009, 11:10 PM, said:

No, you cannot prepare trust returns on the basis of assumptions, only in terms of the ITA, which does not consider "wants", unfortunately.

Nor can the beneficiaries choose the value they desire on which they get to be taxed, the ITA does that.

Perhaps you should consider the assistance of a colleague/tax accountant for the relevant tax returns.

In my view the executor has left it too late plan the maximum "best" tax outcome for the beneficiaries. Now it is what it is.

Thank you. Actually I am the executor.

I have paid thousands of dollars to the tax accountant of a major firm (and lawyers) and no mention / discussion ever took place on "best" tax outcome for the beneficiaries. They just prepared the tax returns.

Now I just want to prepare the final accounting and distribute so I can wrap up the estate but hesitate because I do not want to leave unused tax losses in the estate if distribution causes a deemed disposition at extremely lower values given the global economic meltdown. If that is the case, I will hold off wrapping up the estate up as none of the beneficiaries "need" the funds but they would like to have them. :unsure:

I agree opportunities may have been lost but CRA was extremely slow in processing the return - well over 6 months, which I received back well after the one year anniversary of the death.

Anyway, thank you once again for your advice. It was appreciated. As I do not have any money at present to pay the tax accountant additional fees, I guess I'll just leave it for now. :mellow:

[dunner]

lakegirl, on Jan 30 2009, 01:15 PM, said:

Thank you. Actually I am the executor.

I have paid thousands of dollars to the tax accountant of a major firm (and lawyers) and no mention / discussion ever took place on "best" tax outcome for the beneficiaries. They just prepared the tax returns.

Now I just want to prepare the final accounting and distribute so I can wrap up the estate but hesitate because I do not want to leave unused tax losses in the estate if distribution causes a deemed disposition at extremely lower values given the global economic meltdown. If that is the case, I will hold off wrapping up the estate up as none of the beneficiaries "need" the funds but they would like to have them. :unsure:

I agree opportunities may have been lost but CRA was extremely slow in processing the return - well over 6 months, which I received back well after the one year anniversary of the death.

Anyway, thank you once again for your advice. It was appreciated. As I do not have any money at present to pay the tax accountant additional fees, I guess I'll just leave it for now. :mellow:

If the distribution to the beneficiaries is in settlement of their capital interest in the estate (and it sounds like it is in your case) then the ITA deems the securities to go to the beneficiaries at the ACB to the estate (the higher deemed value at death). The beneficiaries can sell the securities now and trigger capital losses but I'm sure you're aware that the capital losses can only be claimed against the beneficiaries' capital gains in the last 3 years or indefinitely into the future. It's too bad no one properly advised you regarding triggering capital losses in the first tax year of the estate.

[chevcity]

lakegirl, on Jan 30 2009, 06:15 AM, said:

Thank you. Actually I am the executor.

I have paid thousands of dollars to the tax accountant of a major firm (and lawyers) and no mention / discussion ever took place on "best" tax outcome for the beneficiaries. They just prepared the tax returns.

Now I just want to prepare the final accounting and distribute so I can wrap up the estate but hesitate because I do not want to leave unused tax losses in the estate if distribution causes a deemed disposition at extremely lower values given the global economic meltdown. If that is the case, I will hold off wrapping up the estate up as none of the beneficiaries "need" the funds but they would like to have them. :unsure:

I agree opportunities may have been lost but CRA was extremely slow in processing the return - well over 6 months, which I received back well after the one year anniversary of the death.

Anyway, thank you once again for your advice. It was appreciated. As I do not have any money at present to pay the tax accountant additional fees, I guess I'll just leave it for now. :mellow:

for your info, at small cost, get the latest 3rd ed. of The Executor's Handbook, published by CCH. It costs about $140 and is a very good reference book for layperson

[lakegirl]

Thank you everyone for your advice. It is appreciated.

Dunner, there were actually minimal losses during the first year. The meltdown occurred last fall (after the first year) when the global economy went into a tailspin.

Chevcity, I will definitely look into the purchase at CCH. Thank you. I had been reading selfCounsel publications to try and get an understanding.

Again, really appreciate your advice. Thanks.

[news4u]

lakegirl, on Jan 29 2009, 11:31 PM, said:

Hello,

I am working on the accounting for the final distribution of an estate. The equities had a deemed disposition at the date of death when the market was higher than now (past the one year mark). The equities will be distributed in kind to the beneficiaries. I am fairly certain that the beneficiaries get to value their cost base of the equities at the deemed disposition value on date of death ... but I want to verify this is true? I do not want to trigger capital losses in the estate as there are no offsetting gains.

Can anyone verify if I am right in my assumptions?

Yes the beneficiaries receiving the equities will have an ACB of whatever the ACB to the Estate was which is the FMV on the date of death. Thus there is no gain or loss to the Estate. Since in your case the value of the equities has decreased, they will receive them at an ACB that is higher than the current value of the shares. They can then decide whether to sell them and crystallize a loss that they can use to offset gains in any of the 3 prior tax years, or carry the loss forward indefinitely. Maybe they'll decide to keep the shares until they increase in value. That should be their decision.
When filing the final T3 return, you need to include a list of what was distributed, to whom, at what ACB and the current FMV.
And don't forget to request a Clearance Certificate once you receive the Notice of Assessment for the T3.

[lakegirl]

news4u, on Feb 5 2009, 02:15 PM, said:

Yes the beneficiaries receiving the equities will have an ACB of whatever the ACB to the Estate was which is the FMV on the date of death. Thus there is no gain or loss to the Estate. Since in your case the value of the equities has decreased, they will receive them at an ACB that is higher than the current value of the shares. They can then decide whether to sell them and crystallize a loss that they can use to offset gains in any of the 3 prior tax years, or carry the loss forward indefinitely. Maybe they'll decide to keep the shares until they increase in value. That should be their decision.
When filing the final T3 return, you need to include a list of what was distributed, to whom, at what ACB and the current FMV.
And don't forget to request a Clearance Certificate once you receive the Notice of Assessment for the T3.

Thanks so much for the advice. It is appreciated. I want the beneficiaries to be able to decide if and when they sell. Thanks again! :)

[JohnNP]

news4u, on Feb 5 2009, 02:15 PM, said:

Yes the beneficiaries receiving the equities will have an ACB of whatever the ACB to the Estate was which is the FMV on the date of death.

often, but not necessarily - depends on the deeming and calculation pursuant to s107

[lakegirl]

JohnNP, on Feb 5 2009, 02:52 PM, said:

often, but not necessarily - depends on the deeming and calculation pursuant to s107

John, As I no longer have a copy of the ITA, is there somewhere online that I can look up s107?

[spenceh]

lakegirl, on Feb 5 2009, 04:17 PM, said:

John, As I no longer have a copy of the ITA, is there somewhere online that I can look up s107?

Do a find for Disposition by taxpayer of capital interest on this web site: http://laws.justice....c/cs/i-3.3///en and you'll be at Section 107