Taxation — Practice Case 8

Case (120 minutes)

You, CPA, work for Campbell & Poolman Chartered Professional Accountants, a public
accounting firm. Last week, at the suggestion of the partner, you presented a seminar
entitled “Do You Know What’s in Your Will?” The seminar addressed how poorly written
wills can result in a significant tax liability on death. You also addressed other issues
that individuals do not always consider, such as who is the best executor, how to ensure
assets go to the intended individuals, and what happens if one’s spouse dies first.

Today is March 15, 2023, and you had a meeting with new clients, Martin and Linda.
Because Martin is 12 years older than Linda, they worry about what might happen if he
were to die first, including what the filing requirements would be if Martin were to die.
Further notes from the meeting are in Appendix I. They also provided you with a copy of
Martin’s will (Appendix II) and a summary of current assets and other information
(Appendix III) that you had suggested they bring to the meeting

Following your meeting, the partner comes up to you and says, “I hear our firm has new
clients. When I am reviewing a client’s will, I approach it by first addressing what the tax
liability would be if the individual died today, using their will as presented to me. I usually
start with an assumed tax rate of 45%. Secondly, I look for things in the will that could
be changed to be more advantageous from a tax perspective and let them know. I also
look for unanticipated consequences that could result from the design of the will. I look
forward to reviewing your memo to Martin and Linda.”

Your response should be no longer than 3,600 words, excluding any Excel files.

Chartered Professional Accountants of Canada, CPA Canada, CPA

are trademarks and/or certification marks of the Chartered Professional Accountants of Canada.
© 2023, Chartered Professional Accountants of Canada. All Rights Reserved.

Les désignations « Comptables professionnels agréés du Canada », « CPA Canada » et « CPA »

sont des marques de commerce ou de certification de Comptables professionnels agréés du Canada.
© 2023 Comptables professionnels agréés du Canada. Tous droits réservés.
2022-11-02
Tax — Practice Case 8 Case

Appendix I
Notes from meeting with Martin and Linda

Martin tells you that he prepared a will on his own a few years ago using
www.willsforless.com. He did not know much about preparing a will, but he found the
website easy to navigate because he could just select various options from available
drop-down menus.

Martin and Linda have two children, Joseph and Tina. Tina is 14 years old. Joseph, an
architect, is 30 and lives in Vancouver. He is married and has no children. Joseph and
Tina are not close, since Joseph moved out of the house before Tina was in preschool
and he rarely visits.

Martin has been working at the same job for the last 38 years. Linda has stayed at
home to raise the children.

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Appendix II
Martin’s will

Last Will and Testament

Of
Martin Crean

1. I am MARTIN CREAN of Quebec City, Quebec, Canada. This is my will. I revoke all
previous wills.

2. I am married to LINDA DOUGLAS. At the date of this will our children comprise “JOSEPH
DOUGLAS-CREAN” (son); and “TINA DOUGLAS-CREAN” (daughter).

3. I appoint my children, JOSEPH and TINA, to act as joint executors of my will. They must
decide equally on all matters affecting my estate.

4. I give all my property, real and personal, to my executors to act upon my wishes as
follows:

a. The house I own, in which Linda, my wife, and I live, I leave to my son, Joseph.

b. The cottage I own, which my wife and I enjoy together, I leave to my sister, Amelie.

c. Any funds that I hold in registered retirement savings plans and the tax-free savings
account I leave to my son, Joseph.

d. Any funds that I hold in non-registered investments I leave to my daughter, Tina.

e. Any funds that I hold in a bank account I leave to my wife, Linda.

f. Any artwork that I own I leave to my sister, Amelie.

g. Any jewelry that I own I leave to my son, Joseph.

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Appendix II (continued)
Martin’s will

5. I authorize the power upon my executors, at their discretion, to sell any remaining assets,
either through public or private sale, to cover any personal or estate tax liabilities, or other
debts that may arise as a result of my death before the distribution of any assets.

6. If any executor of this will should live outside the geographic location where I last resided
before death, that executor shall be entitled to receive reimbursement for their travel
expenses in whatever amount they deem fit.

7. In Witness whereof, I have to this my Last Will and Testament, subscribed my name this
13th day of August, 2018.

Martin CREAN
WITNESS MARTIN CREAN

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Appendix III
Summary of current assets and other information

Fair market
Cost value
House $ 75,000 $ 250,000
Cottage $ ? $ 245,000
Registered retirement savings plans $ 170,000 $ 195,000
Non-registered investments $ 28,000 $ 55,000
Tax-free savings account $ 18,000 $ 20,000
Artwork $ 500 $ 10,500
Jewelry $ 25,000 $ 20,000
Cash (bank account) $ 190,000 $ 190,000

Notes:

The house was purchased by Martin in 1980.

The cottage was a gift from Martin’s father (Marc) to Martin in 1990. Marc first acquired
the cottage in 1952 from his wife’s parents. At the time the cottage had a fair value of
$2,000. Marc significantly renovated the cottage over the years, and when he gave the
cottage to Martin, he estimated its value had increased to $95,000. Martin and Linda
renovated the cottage in 1993, and estimate they spent $45,000.

Martin and Linda have ordinarily inhabited both properties during each year of
ownership.

The registered retirement savings plans are in Martin’s name only, and he is the only
contributor to the plans.

The non-registered investments are stocks that Martin has invested in. They are all
Canadian investments, trading on Canadian stock exchanges. They are as follows:
Fair market
Cost value
SoftTech Canada Inc. $ 3,000 $ 6,000
Buckwold Corporation $ 5,000 $ 8,000
Foxhound Real Estate Inc. $ 20,000 $ 41,000
$ 28,000 $ 55,000
Martin receives about $2,500 (total) of dividend income per year on these investments.

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Appendix III (continued)

Summary of current assets and other information

Martin realized a capital loss of $20,000 when he sold some investments in 2007. Since
then, he has owned only the above assets, and has reported no other capital gains or
losses.

The artwork is a painting by a friend, a famous artist. It was purchased two years ago.

The jewelry is the three-carat pink diamond wedding ring Martin inherited from his
deceased mother. The ring had a fair market value of $25,000 at the time that Martin’s
mother died. However, the pink diamond was damaged last year, so its value declined.

Martin and Linda do not have a life insurance policy, since the house is paid off and the
couple does not have significant personal debts.

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