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Is Probate really necessary? Not if it is the “First Dealing” of the Property since Conversion

Several years ago the Province of Ontario changed from the Registry System to the Land Titles Conversion Qualified (LTCQ) system for the registration and searching of real estate title (ownership).  The Registry Systems was a paper system, whereas, the LTCQ system is an electronic system, which provides efficiency in searching and registering title and provides assurances that the title registered is valid title, due to the fact that there is no concern of duplicate entries, as was prevelant in the paper Registry System.

If a transfer or sale of a property is being completed and a deceased party is registered on title it is important to know whether or not probate is required to be completed, as the cost savings from not having to complete probate can be substantial.

It is important to know that probate does not have to be completed on a property where it is the first dealing of the property since it has been converted from the Registry System to LTCQ.

The First Dealings Exemption is available in instances where the deceased party on title acquired the property while it was registered under the Registry System and continued to be registered on title, uninterrupted, after it was converted to LTCQ. This First Dealings Exemption would continue to apply as long as the deceased did not transfer their ownship of the property, so the fact that they registerd and discharged mortgages after they acquired the property would have no effect.

The First Dealings Exemption would continue to apply in the instance that a joint tenant, who was registered on title previously with the recently deceased, passes away and a survivorship application was completed to transfer the title solely into the ownerhsip of the recently deceased. Lastly, transfers of title between spouses due to the breakdown of the marriage would not result in the First Dealings Exemption being lost. However, if there is no valid Will and Last Testament then such discrepancy will vitiate the usage of the First Dealings Exemption.

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.