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.