Canadian Lawyer

"I think we're all going to need to focus more when we're planning new trusts that this disclosure will be required." Margaret O'Sullivan, O'Sullivan Estate Lawyers LLP new or enhanced disclosure obligations. While lawyers may not be the ones gath- ering the information required — which includes the name, address, date of birth and tax identification number of the settlor, trust- ees and beneficiaries, as well as anybody who has the ability to exert influence over trustee decisions, such as a protector — the changes will have them "thinking how it impacts our planning," O'Sullivan says. "I think we're all going to need to focus more when we're planning new trusts that this disclosure will be required. I think it will impact who we include in a class of beneficia- ries, to some extent, and we're going to have to focus on that issue more whereas before the idea was a trust was entirely private." O'Sullivan adds that if it's a very broad group of beneficiaries, collecting the informa- tion could be "quite onerous or in fact could be quite sensitive to a particular client who established the trust." "The beneficiary might not find out the terms of the trust, but it would raise the ques- tion of 'why are you asking me what my tax information number is?'" she says. There may be an impact in terms of what clients do under a trust going forward, O'Sullivan says, adding that the idea of a pri- vate trust "may slip from our vernacular in 2021, as the public sphere grows wider, the private sphere shrinks and change becomes more than ever the new constant." Clients might opt to keep the trust more generic and use a will instead to make a number of legacies to named individuals or lay out specific bequests of property. Other approaches to passing assets or setting out intentions — such as letters of wishes — might become more desirable options. "We' ll need to look at all those tools," O'Sullivan says. She also predicts that 2020 will see a lot of activity as trustees prepare for the new rules, "including winding up trusts where appropri- ate, such as those that are redundant and no longer serve a purpose." "Our firm will be communicating with the trustees of trusts we have assisted to estab- lish to alert them with respect to the new rules so they can proactively deal with them," O'Sullivan says. Atin predicts the changes will have "a dra- matic impact" on the use of trusts as they were a great way of keeping financial mat- ters private, and that was a major reason for using them. Family trusts, for example, are often cre- ated to be "a very flexible conduit" where the trustee can "sprinkle" the money around to children or grandchildren any way they want, he says. They weren't doing anything illegal before — they were delivering income to beneficiaries. Now, a person would have to tell the government everything — who over- sees the money, who has control of it, who the beneficiaries are. "If I had a family company and I held it in my own name, I'd have to declare the income and CRA would know I own it; but, histori- cally, the trust would own it and the CRA wouldn't know who ultimately are the real owners," Atin says. "That's what governments are trying to get after, not just whose name appears — for example, the John Doe Family Trust. Now, they're digging deeper — who really owns this?" He says lawyers used to tell clients about the trust's privacy, but, "now, we say you'll have to file tax returns and there are certain exemptions for very small trusts — but you've got to assume you' ll have to tell the CRA everything," says Atin. "This inquiry, this disclosure, is going to open up a lot more areas for CRA to investi- gate whether all the taxes that should be paid are being paid." And, failure to report comes with stiff pen- alties, O'Sullivan says. If a taxpayer knowingly fails to disclose or if there is gross negligence, the penalty is $2,500 or five per cent of the highest fair market value of the trust's assets, whichever is greater. "For a trust that holds a cottage worth $3 million, that could be a whopping $150,000," she says. While the change in reporting and tax filing obligations "may be a sign of other changes to come," Popovic-Montag says, it will not in itself expose trusts to a new form of taxation. "Trusts holding assets generating income, which is often the case, already file tax returns on an annual basis," she notes, adding that, in her view, the new reporting requirements "are unlikely to change how clients choose to deal with their assets." She says trusts function with several benefits unrelated to privacy. "What may be the more notable change is the new disclosure obligation," says Popovic- Montag. "For clients currently acting as trust- ees, these changes will result in additional work in preparing tax filings and obtaining and submitting the necessary disclosure. Some clients may be reluctant to do so, espe- cially in circumstances where they may prefer these personal matters to remain private." Along with O'Sullivan, she also predicts the changes may encourage trustees to take early steps to wind up trusts where "their con- tinued existence will be more work than the benefits of the trust structure may offer." However, Popovic-Montag says trustees have already been found to have an obli- gation to disclose the existence of a trust and its terms to beneficiaries in the 2018 www.lawtimesnews.com 29

• Cover