Barrister & Solicitor

--- TABLE OF CONTENTS ---

ABOUT
CONTACT
FAMILY LAW:
Marriage or Cohabitation
Agreements
Marriage Breakdown or Breakdown of a Common Law Spousal or Same-Sex Partner Relationship
Conclusion/Disclaimer
WILLS & ESTATES:
Wills
Probate Taxes
Intestacy
Rights of Surviving Spouse & Dependants
Conclusion/Disclaimer
MAIN PAGE


Wills & Estates: Probate Taxes

1. Probate

Probate is the process by which the Ontario Court certifies that a will was duly proved and registered in the Court and that the administration of the property of the testator was duly committed to the estate trustees. The Court’s granting of probate offers real protection to both estate trustees who administer an estate and third parties dealing with estate trustees. For example, if it turns out that a probated will is not, in fact, the last valid will of the deceased, all acts completed under the authority of the probate, nevertheless, will be treated as valid.

2. How Probate Taxes are Calculated

As part of the probate application process, an estate administration tax must be paid. Probate taxes are calculated on the fair market value of all property owned at the time of death (not including insurance payable to a named beneficiary or assigned for value, property held jointly or passing by survivorship, or real estate outside Ontario). The only debts that are deducted in the calculation of fair market value are those secured by mortgages registered against title to real property. In Ontario, the rates of probate are 0.50% on the first $50,000 of an estate’s fair market value and 1.50% on the estate’s fair market value over $50,000.

3. Ways of Minimizing Probate Taxes

Often, the desire to minimize probate fees becomes an over-riding objective in the estate-planning process. This approach can be a concern, in circumstances where all relevant factors are not identified, considered and balanced against one another. Some common techniques for minimizing probate taxes are set out below.

  1. Multiple Wills

    A relatively recent approach in Ontario to minimizing probate fees is that of multiple wills. Generally, a testator’s first will addresses the treatment of assets for which probate is required, and the other will addresses the treatment of assets for which probate is not required. Assets that may be transferred without probate, and that are often the subject of this estate-planning approach, include shares and debt obligations of a private corporation, land registered in the Registry System, and personal effects and household contents. Multiple wills are drafted by describing one as being in respect of the “Primary Estate” and the other as being in respect of the “Secondary Estate”. The will in respect the Primary Estate deals with the assets that require probate, and the will in respect of the Secondary Estate deals with the assets intended to be exempt from probate. Each will expressly refers to the other and confirms that the making of one is not intended to revoke the other.

    In certain circumstances, a will in respect of a Secondary Estate must be probated, despite the intention at the time of drafting that this would not be the case. For example, probate will be required if the estate is involved in litigation, third parties refuse to transfer assets unless the will is probated, or foreign executors intend to deal with assets located in Ontario.

  2. Joint Ownership

    Joint ownership of property is a traditional way of avoiding probate taxes on such property. If property is jointly owned, its entire title passes on the death of one joint owner by right of survivorship to the surviving joint owner, provided that the property was intended to be jointly owned (and that the joint ownership was not merely for power of attorney purposes, for example). Property that transfers in this way does not fall into the estate of the deceased person, and probate fees are, therefore, avoided.

    Note that joint ownership of property should be approached cautiously. For example, a marriage breakdown may occur in the future on the part of one or both of the joint owners. In addition, there may be a risk of misappropriation of funds, where an elderly parent contemplates joint ownership with an untrustworthy adult child, for example. A loss of a principal residence designation for income tax purposes may unintentionally result. In any event, joint ownership will bring about some loss of control over the asset, that may not be desirable. Depending upon the circumstances, the uncertain risks of joint ownership may outweigh any benefit of avoiding quantifiable probate fees; and

  3. Designations

    If a beneficiary is designated on a policy of life insurance or on an RRSP or RRIF, the proceeds of life insurance or the value of the RRSP/RRIF, as the case may be, will be payable by the institution in issue directly to the beneficiary. In most cases, these funds are paid fairly quickly following death. Provided that the designated beneficiary is not the estate, probate fees will be avoided.

    There often can be a significant passage of time before distributions are made to beneficiaries in the administration of an estate. Any delay will be particularly pronounced where there is a Family Law Act claim or a risk of same, as addressed in the section on Rights of Surviving Spouse & Dependants. In these circumstances, designations often facilitate payment of much needed funds during the period immediately following death.