MONEY MATTERS
PROBATE
UPDATE:
Be prepared
– By Léony deGraaf, CFP, EPC
At some point, we are all going to end up either being
an Executor or needing an Executor. For this reason, it is
important to understand the recent changes to Ontario’s Estate
Administration Tax, which came in to effect January 2015.
The good news is the fee schedule did not change – it is
still calculated as $5/$1,000 for the first $50,000 of assets
and $15/$1,000 or 1.5% thereafter in Ontario.
The bad news is the government intends to collect a lot more
of this tax, by requiring anyone who receives a Certificate of
Estate Trustee to file a new 7 page Estate Information Return
(EIR) with the Ministry of Finance.
The new legislation is an effort to ensure the Province
receives its fair share of estate tax, which it believes it has been
shortchanged in the past due to conservative, or significantly
understated, estate values. Since the old system did not have
any form of ‘checks and balances’, there was no way for the
province to know if the values reported were correct, or even
how to enforce compliance. In short – the old system was a
joke, the new system has teeth.
The first two steps of the Probate process remain unchanged,
whereas persons seeking to be appointed by the Court as the
Estate Trustee (commonly known as the Executor) first need
to file an application with the Superior Court of Justice and
submit the last known Will of the deceased. This application
is made to the Court where the deceased had permanent
residence. This initial application requires the named Executor
and/or the lawyer to locate and list the known assets of the
Estate and their value, and attach payment to the Court of
1.5% of the estate value. This is now referred to as the ‘deposit
paid’ toward the Estate Administration Tax . . .hint . . . hint.
Second, if the Court finds the Will to be in good order and
the most recent, they will go ahead and issue a Certificate of
Appointment of Estate Trustee, so the Executor now has the
legal authority to act on behalf of the estate and administer
the provisions of the deceased’s Will.
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It is the third step that is new, which requires any person(s)
appointed an Estate Trustee to file the new Estate Information
Return within 90 days from the date the Certificate of
Appointment of Estate Trustee was issued. It is very important
to be aware of this new third step, since this is the step that is
punishable by a minimum fine of $1,000 and up to twice the
amount of the tax payable by the estate if missed. Failure to
file this new EIR or intentionally reporting false information
can also result in up to two years of jail time for the Executor.
Step three also comes with a 4 year reassessment period,
meaning the Minister of Finance can audit the Estate
Information Return at any time from the date of filing and
up to four years after. If no EIR is filed, there is no statute
of limitation. Dying intestate (without a Will) is not the
answer either, as practically all estates are expected to file
this return. It used to be common practice that if an Estate
had less than $10,000 in reportable assets it didn’t need to
be probated. That dollar value has now been brought down
to $1,000 of estate value.
So what information will the Executor have to provide on
this new EIR? The Ministry of Finance would like to know
some personal details about the deceased and where they lived,
as well as personal contact details for the Estate Representative
(the Executor). Next, the Ministry wants to know about all
real estate owned by the deceased in Ontario, as well as its
fair market value and the deceased’s percentage of ownership.
The value can be decreased by any outstanding encumbrances
registered against the property.
With many seniors having put their adult children on title
of their home or bank accounts to avoid probate, this can now
be a tricky area to navigate without the guidance of a lawyer.
On one hand the EIR Guide states not to list any property
the deceased owned as a joint tenant, but on the other hand
it states to include any property the deceased had a beneficial
interest in. Ownership is at two levels: legal and beneficial.
If the deceased still lived in the home or still had beneficial
access to their bank account, these assets will most likely now
be subject to Estate Administration Tax.
The Executor will also have to provide details about the
deceased’s bank accounts and the balances at the date of death,
the value of all investment accounts (except those which
pass outside the Estate by way of a beneficiary designation,
such as a RRIF or RRSP or any Segregated Funds with a
named beneficiary) and the value of all vehicles and vessels
the deceased owned at the time of their passing, and their
fair market value. Lastly, the Ministry of Finance wants to
know about any other property the deceased owned, such as
business interests, copyrights, patents, household contents,