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FEATURE ARTICLE
gains deduction and the shares will be bequeathed
to the spouse. The clause that sets up this benefit is
commonly called a "double option clause."
This clause ensures that on the death of a
shareholder, the shares will eventually be purchased
by the surviving shareholders while also allowing
them to be transferred to the surviving spouse,
in compliance with the federal tax authorities'
definition of irrevocable acquisition.
First, the shares are bequeathed to the surviving
spouse, who acquires them irrevocably. They are
transferred to the surviving spouse in the corporate
registries, taking into consideration the time frame
accepted by the federal tax authorities.
Next, for a given period of time, the surviving
spouse is granted the option to sell the shares to
the corporation. The surviving shareholders are
obliged to purchase them if the spouse offers to
sell.
Then, if the spouse does not offer to sell the shares
to the surviving shareholders, they can offer to
buy them. In this case, the spouse is obliged to
sell them.
Suppose, for example, that a corporate shareholder
owns 100 shares worth $1,600,000, with an ACB
of zero, and that the shares are qualified small
business corporation shares (QSBC) eligible for
the capital gains deduction. Neither the shareholder
nor the shareholder's spouse have used their CGD.
On the shareholder's death, the shares in question
are bequeathed to the spouse, who acquires them
"irrevocably." The spouse can choose to transfer
50 of the shares by rollover. The remaining 50
shares trigger a capital gain of $800,000 for the
deceased, for which the CGD can be claimed.
When the option is exercised, the 100 shares still
have a value of $1,600,000, but now the ACB is
$800,000, since 50 shares were not rolled over. The
final transaction triggers an $800,000 capital gain
for the surviving spouse, who will, in turn, claim the
capital gains deduction.
In short, when you are developing an estate plan,
it is important to consider the nature of the assets
in the estate, as well as the legatees' intentions
after the testator's death. An examination of these
factors may influence the approach you use and the
decisions that will ultimately be made.
