by Frank Oakes, B.A., L.L.B.
(Editor’s note: Part 2 of this article covering additional methods of avoiding probate will appear in the October Glebe Report.
In 2015, for the purpose of increasing tax revenue, a new probate regime came into effect in Ontario that greatly affects all Ontarians. The following discussion is not about the new probate requirements, but rather how probate may be avoided thereby resulting in reduced work, legal fees and tax.
What is a probate?
The authority of an individual (executor or trustee) to represent the estate of a deceased person comes from the will itself and is effective from the moment of death. Proof of that authority, if needed, may be requested by formal application to the Ontario government and comes in the form of a printed certificate. This certificate has always been known as Letters Probate, but is now formally referred to as a “Certificate of Appointment of Estate Trustee.” It is still most commonly referred to, even in the courts, as a Probate and for reasons of brevity we shall do so in this article.
The sum paid for the issuance of a probate certificate is a tax known as the estate administration tax and is calculated on the value of the assets declared in the probate application, being $5 per $1,000 for the first $50,000 and thereafter $15 per $1,000.
For example, the tax on an estate of $300,000 is $4,000.
Although few Ontario residents are aware of it, the new estate asset reporting requirements in probate applications have greatly increased and include deadlines for carrying out the work, audits and re-assessments. Penalties for failure to comply with the new and sometimes complex and confusing requirements are significant and include fines and imprisonment. Added to this will be legal fees necessitated by the increased workload imposed on lawyers retained to carry out the new work, fees which may exceed the tax.
Why probate a will?
In Ontario there has never been, and is not now, any legislated or other legal requirement to apply for probate, and as the tax can only be demanded as a consequence of filing a probate application and only on the estate assets there declared, by avoiding probate, you avoid not only the tax but a large amount of paperwork and expenses such as valuation consultants and legal fees as well as the threat of penalties mentioned above. The only reason for applying for a probate certificate is to provide protection for the executor’s actions should any problems later arise concerning the validity of the will; institutions such as banks and the Land Registry Office may demand this protection before allowing the estate’s representative to deal with a particular asset. Otherwise, probate may frequently be avoided, and following are some of the means by which this may be done.
How to avoid probate
To avoid probate and the consequent tax, you need achieve only one thing: that is, to arrange your affairs so that your assets do not pass to your heirs through your estate, but rather, outside of it. There are various means by which this may be achieved. We shall deal only with the most simple and obvious ones.
Gifts: Any assets given away before your death will not form part of your estate. We no longer have any gift tax but for a gift to be binding in law, there must be an intention to give, and such acts as may be necessary to give effect to that intention, such as actual delivery or written documentation of the gift, which in the case of real estate or a vehicle can be carried out through the appropriate provincial agency where title is recorded. Be reminded that a gift can trigger a taxable capital gain and that the income tax attribution rules may apply if the gift is to a spouse or minor child.
Bank accounts: When there is a will, often banks will release funds from a deceased person’s bank account without insisting on probate. The amount will depend upon the circumstances and the bank’s satisfaction with the indemnifying documents that will be requested. The discretionary threshold in waiving probate with some banks is as high as $25,000.
As with all financial and tax saving strategies, the benefits must outweigh the trouble and costs involved. The purpose of this article is to inform the readers of recent changes in the law of Ontario relating to probate and to acquaint them with some of the means they may wish to consider in the planning and management of their affairs. All procedures involve legal implications beyond the scope of this article should not be undertaken without professional legal advice to determine their suitability in individual circumstances.
Frank Oakes is a retired barrister and solicitor who lives in the Glebe.