The Estate Trustee's Tasks

The Estate Trustee’s tasks during the Administration of an Estate

Today’s post highlights some important items that an Estate Trustee must turn his or her attention to during the administration of an Estate.

In a nutshell, an Estate Trustee’s role includes tasks such as gathering and managing assets, paying debts and expenses, locating the beneficiaries an distributing the estate to those entitled. However, from start to finish, there are multiple items to be taken care of by the Estate Trustee – some simple but others which can be appear more daunting to the unfamiliar.  Listed below are some of these tasks:

 

Certificate of Appointment: depending on the assets that form a part of the estate, an Estate Trustee may be advised that he or she is required to ‘probate’ a Will which is the process of obtaining formal authorization from the Court. This authorization is formally known as the Certificate of Appointment of Estate Trustee and essentially confirms that based on the information provided, the Will, if one was submitted, would be deemed to be the last known Will of the deceased and lists the appropriate individual(s) as the proper personal representatives of the estate. A similar authorization exists if there was no Will to begin with. In order to prepare this application, it will be important to ascertain value of the estate. There are various rules in relation to which assets form a part of the estate and those that are exempt which are important know as they impact the amount of estate administration tax that may be payable into the court. Along with all this, proper notice is required to be provided to those entitled to the estate.

Income Tax: The Income Tax Act of Canada provides that when an individual dies, there is a “deemed disposition” of assets which may give rise to capital gains (or losses) as at the date of death. To determine these figures, an inventory of assets is crucial along with filing the necessary tax returns – and the estate trustee may be required to file the following returns:

  • T-1 General return – if the deceased had not filed for previous taxation year(s);
  • T-1 Terminal return – covers the year of death;
  • T-3 Estate return – this covers income received from any estate assets including interest earned
  • Final distribution returns
  • Designation of an estate as a Graduated Rate Estate, if applicable, which is entitled to marginal tax rates.

Clearance Certificates: before making final distributions to the beneficiaries, it is important to obtain a Clearance Certificate from the Canada Revenue Agency. The Estate Trustee risks personal liability in relation to the distributions made if it is found later that there are taxes owing which were to be paid. Obtaining this certificate provides assurance to the Estate Trustee that no additional tax is payable.

As one can imagine, a number of other tasks need attention, such as:

  • Searches in relation to any judgments owing in the deceased’s name
  • Preparation of Estate Accounts
  • Preparation of Statement of Accounts as well as releases from Beneficiaries
  • Preparing necessary notice to creditors
  • And many more…

 

As an estate trustee, you are entitled to claim compensation in connection with time spent during estate administration. The calculation is based on a percentage of the estate and depends on the nature of the work involved and the amount is usually determined after the estate administration is completed.

It is highly advised that if you have been appointed as an Estate Trustee or want have such an appointment made by the courts, you speak to a professional to gain a clearer understanding of the nature of the role.

This content is only for information purposes and does not constitute legal advice and should not be relied on as such. Please speak to a lawyer for more details.

Estate planning for Separated Couples – reasons to get your will done or re-done

In Ontario, simply being separated from your spouse and not obtaining legal divorce may put your estate plan in jeopardy. Section 17(2) of the Succession Law Reform Act (“SLRA”) provides that for parties that have obtained legal divorce, any reference to a former spouse in an individual’s will is revoked and the will is construed as if the former spouse had predeceased the testator (party preparing the will). This is helpful due to the simple fact that after divorce, there is clearly a shift in interests and priorities and the law protects you in this regard. However, unlike the provision protecting those who obtain a divorce, there is no similar provision in a situation where spouses are just separated. That being said, it is a common misconception to believe that if you are separated, your ex-spouse will not inherit anything.

In fact, where spouses are separated (assuming no update to the will) and one party passes away, the surviving spouse maintains his or her entitlement under the will. The result is not much different if there was no will to begin with – the separated spouse may still qualify under the definition of a “spouse” under the intestacy rules.

A simple example may serve to bring the point home: if you have separated from your spouse (and not obtained a divorce) and own property jointly, the property may pass to the former spouse automatically. A visit to the lawyer’s office can prevent this from happening so that your portion of the property passes on to whom you intend. This may be to provide for your children, your siblings or even your new common law partner.

Along with preparing or revising an existing will, upon separation, one must ensure they update their insurance policies, registered plans, and any pensions. Further, unless you want your separated spouse to be able to make your property and personal care decisions, you must attend to preparation of your power of attorney documents as well.

Since separation can drag on for some time, individuals need to ensure they take a close look at their assets and related estate documents to avoid unintended consequences.

The above serves as general information only and is not to be relied on as legal advice. Please contact your lawyer for your specific circumstances.

Probate and Estate Administration Tax

When acting as a prospective estate trustee in Ontario, it is often necessary to apply to the court for a certificate of appointment of estate trustee. Although it is commonly referred to as “probate”, the certificate of appointment is essentially a validation of a will or, in a scenario where no will exists, an authorization for the estate trustee to manage and distribute the estate of a deceased person.

This certificate may be required in circumstances where the deceased owned real estate or held assets in accounts for which various offices and institutions require the court’s validation. In fact, most financial institutions or land registry offices want to be certain of the appointment in order to avoid being wrapped up in any litigation in the event that money or assets are transferred to the wrong parties.

The application for probate also involves the payment of estate administration tax, or as commonly known as “probate tax” under the Estate Administration Tax Act. The amount payable for this tax depends on the size of the estate and the current tax rates are as follows:

  • For an estate valued less than $1,000, there will be no probate tax payable.
  •  For an estate valued up to $50,000, the rate is $5 for each $1000 or part thereof.
  •  For an estate valued at over $50,000, the rate is $250 (for the first $50,000) plus $15 for each $1000 or part thereof.

For example, an estate with a value of $240,000 will be required to pay $3,100 in estimated estate administration tax. A larger estate of $1,000,000 will attract $14,500 in estate administration tax.

For estate administration tax calculations, the total value of the deceased’s estate may include assets such as:

  • Bank accounts
  • Investments (bonds, trust units, stocks, etc.)
  • Vehicles and vessels
  • Real estate in Ontario (net of encumbrances such as mortgages)
  • Insurance proceeds (where proceeds pass through the estate)
  • All other property including business interests, goods, intangibles, etc.

There are some assets which flow outside the estate such as those which are held jointly or, pass by way of beneficiary designations. When considering estate planning, a number of steps may be taken to reduce probate fees payable. However, some of these options present other risks which need to be carefully assessed.

Along with the above, there are very onerous requirements placed on an estate trustee to not only manage and distribute the estate, but also to file a detailed estate information return to the Ministry of Finance within 90 days of obtaining probate. It is important to consult a professional to help you with estate planning or, administration services, to ensure you limit your exposure to potential liability. Should you require any assistance or, other estate related services, we would be glad to assist you.

Please note the above serves as general information and not legal advice and is not intended to be relied on as such.

Joining Assets with Children

We recently came across an individual asking whether he could avoid the cost of preparing a Will by simply ‘joining’ all his assets with his children. Perhaps you may also have someone give you such an idea in order to skip the preparation of a Will because it’s “easier and cheaper to just join your accounts” than to visit the lawyer’s office.  

Interesting but misinformed.  

While joint ownership is often used as an estate planning tool in order to have assets transferred to the surviving owner (or simply for the sake of convenience) and avoiding the dreaded probate tax upon death, it has to be thought through to avoid unintended results.

Some questions that should be crossing your mind are:

  • Who is this account to be shared with?
  • Is the co-owner of the account one of your adult children?
  • What type of account is it (registered, non-registered etc.)?
  • Are there rollovers available so that there isn’t unnecessary tax burden on the estate?
  • Do you know the tax consequences that arise as a result of transferring a capital asset into joint ownership? 
  • Is the underlying intention to avoid probate tax?
  • Is avoiding probate tax worth the loss of control?
  • Is the true legal and beneficial ownership being transferred?

Some additional considerations may include the following:

In the event of your death, are you certain that Johnny will share equally with your other son, Bobby?  Maybe he will, maybe he won’t. Johnny may be in a financial strife and decide to use the proceeds out of this account thereby cutting Bobby short. What if Johnny’s facing creditor issues? Will creditors now be able to access the account? Do either of them have dependants (children, spouse) and how does all that factor in?

Along with continuous changes in the law, the above are some of the questions one must seek answers to in relation to joining accounts. Other items that require attention when preparing Wills are registered plans, insurance proceeds payable upon death, joint ownership designations, assets owned under tenancy in common etc.

It is always a good idea to speak to a professional and have your situation reviewed. Contact Rabideau Law today and speak to one of our professional Wills and Estates Lawyers.