Estate Planning Strategies to Minimize Ontario Estate Administration Tax
Ontario estate administration tax (formerly "probate fees") is a tax imposed on the estate of a deceased person, and is paid in order to receive a court order, which under present Ontario court rules is called a “certificate of appointment of estate trustee with a will” (formerly a “grant of letters probate”). This court order certifies that the will of a deceased person is valid and also confirms that the person(s) named as executor(s) in the will of the deceased person has the legal authority to administer the estate. Recent legislation has also imposed a more rigorous reporting regime on anyone applying for and receiving a certificate of appointment of estate trustee, which includes rules regarding complex asset valuations and substantiating the reported asset values.
Although there is no legal requirement to obtain such a certificate, many institutions (e.g., banks) will require it to deal with assets of the estate. For example, with respect to banks, depending on the value of the funds the executor is trying to access, they may or may not require the certificate. Allowing access to funds is at their discretion as they are concerned about the liability of handing over funds to someone who might not have been properly appointed (e.g., if the will is found to be invalid). Other institutions, such as the land registry system, will almost always require this certificate before allowing the transfer of real property from the deceased's name to the name of a beneficiary.
Ontario's estate administration tax is the highest in the country and is uncapped. The current tax rates are $5 for each $1,000 of the first $50,000 of the value of the estate and $15 for each $1,000 thereafter. Considering this tax regime, estate planning strategies that would leave more dollars in the estate for loved ones become crucially important. These strategies all involve removing assets from being included in the value of the deceased's estate. Some of these strategies include the following:
Holding assets jointly, whereby on the death of the first joint owner, the surviving joint owner automatically becomes the owner of the asset (of course, this would only make sense if the surviving joint owner is the intended beneficiary of the asset). Many married couples hold title to homes, bank accounts and other financial assets in this way.
Designating a named beneficiary under life insurance, RRSPs, RRIFs or other registered plans, so that such beneficiary will receive the plan or proceeds on death instead of it falling into the estate.
Transferring assets to a trust, which will have terms outlining how the trust assets are to be distributed on death. Such terms can mirror the distribution scheme in the deceased's will.
Gifting assets, especially those that will not trigger capital gains tax, directly to children or other family member before death.
Executing multiple wills, where 'Will A' deals with assets that would normally require obtaining a certificate of appointment of estate trustee, and 'Will B' contains the remaining assets (usually of far greater value, which would, in turn, generate far greater estate administration tax). An estate trustee/executor would then only apply for such a certificate with respect to 'Will A' and estate administration taxes are only paid on the assets dealt with in that will.
There are many legal and tax consequences related to the above estate planning tips that should also be considered to ensure that the particular strategy is beneficial in your unique circumstance. One should always seek professional help in estate planning, involving both your lawyer and accountant, so that the expenses of the estate are minimized and the funds remaining to be disbursed to beneficiaries are maximized.