As readers are no doubt aware, Budget 2014 introduced significant changes to the tax treatment of gifts made by Will or beneficiary designation. As part of those changes, a new taxpayer, called the Graduated Rate Estate, was introduced. In order to benefit from the expanded ability to use tax credits in the deceased’s terminal return, the deceased’s prior year return, or in the estate in the year the gift is made or 5 years thereafter, the gift must be made by the estate while it is designated as a Graduated Rate Estate. An estate can only qualify as a Graduated Rate Estate for a maximum of 36 months following the death of the deceased. As has been noted by many commentators, this 3 year window is problematic where an estate is tied up in litigation. We had hoped that this would be addressed in Budget 2015 by allowing an estate to apply to an extension of the 36 month limit where circumstances warranted it. Unfortunately, this has not been addressed in Budget 2015. We will keep readers posted if technical amendments to the Tax Act address this issue in the coming months.
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