Reduce costs, speed up distribution, and simplify estate administration
Probate taxes in Ontario are set at $250 for the first $50,000 ($5 for each $1,000, up to $50,000), and at 1.5% of the estate thereafter. This translates into about a $15,000 fee for every $1 million in value of an estate. Probate calculator.
There are several strategies to reduce costs, speed up distribution, and simplify estate administration:
Make sure you have a will. If you do have not a will, you do not have an executor (or Estate Trustee in Ontario). If you die without a will, or intestate, the province will appoint an executor through the probate process. Because you have a will, your estate may, or may not, have to be probated. But if you die intestate, your estate must be probated. Probate takes time and therefore slows down the process of wrapping up and distributing an estate.
Consider segregated funds for your financial investments. Guaranteed Investment Funds or “Segregated” funds are similar to mutual funds but are distributed and guaranteed by insurance companies. ‘Seg’ funds bypass the Will, are not subject to probate, and go directly to the named beneficiaries, like insurance policies. Segregated funds also offer a death benefit guarantee of up to 100% of the original investment, regardless of current market value, and may offer protection from creditors. When a person passes away the death benefit is issued quickly and without the 1.5% probate fee because it is not subject to the probate process. Nor does the executor have to administer the distribution of any segregated funds that were held by the deceased.
Ensure that you have named beneficiaries on RRSPs, TFSAs, RRIFs and life-insurance policies. In effect, you will be able to get around having these assets included in the estate for probate purposes. The named beneficiary can be a charity or a corporation or an individual — anybody other than the estate.
Consider joint ownership for non-registered investments and property. Strictly speaking, the assets must be held in a legal arrangement known as “joint tenants with right of survivorship.” In contrast, using an arrangement known as “joint tenants in common” does not provide a way to avoid or minimize probate taxes. Beware of the potential tax and other consequences of joint ownership. Click on this link to read more about joint tenancy and potential pitfalls…
Consider an “alter ego” trust during your lifetime. For instance, when parents add grown children as joint owners of a cottage, that arrangement likely triggers capital gains and sometimes probate tax can still apply on a parent’s death. On the other hand, if a parent set up an alter-ego trust, he or she is able to take the cottage and roll it into the trust without triggering a taxable disposition because the parent is the capital beneficiary of the trust.
Then the parent can name the son or daughter as the contingent beneficiaries after he or she dies. Upon death, the cottage will go to the son or daughter and is not caught by the estate administration tax in the transfer of the property. There are legal fees to set up the alter ego trust.
New legislation will require more detailed information about assets
Estate trustees in Ontario will now be required to report much more detailed information regarding the value of assets in an estate after a recent change in the province’s probate laws. The change is part of a wider effort by the Ontario government to tighten compliance rules regarding probate.
Under new legislation in force Jan. 1, estate trustees are now required to file an “Estate Information Return.” This new form must be filed within 90 days of the estate trustee being issued a certificate of appointment of estate trustee, known as a probate certificate, by the provincial government.
Prior to this year, the estate trustee could provide the government with the amount he or she had calculated as the value of the estate, without being required to provide supporting documentation. “It was believed that asset values were being conservatively estimated, and in some cases, significantly underestimated” by estate trustees under the previous legislation, according to a white paper issued by Mackenzie Financial Corp. of Toronto.
Now, if the government determines that an estate’s value was underestimated, it can issue an assessment or reassessment notice up to four years after the issuance of the probate certificate. Beyond the four-year limit, the government can still assess or reassess an estate if the estate trustee failed to file an information return within 90 days, deliberately made false statements or excluded information on the return.
Executors who fail to file an estate information return or make false statements on the return may be liable to a fine, penalties or imprisonment.
The changes to legislation, first proposed in the 2011 Ontario budget, give the province more information regarding estate valuations and greater power to ensure compliance with probate rules.
“The government gave itself the capability to assess and re-assess if need be,” says Wilmot George, director of tax and estate planning with Mackenzie, “and broader authority to assess penalties.”
In cases in which probate certificates were requested before Jan. 1, there will be no requirement to file an estate information return.
This advice is general in nature. Please consult with us and with your accountant and lawyer regarding your estate.