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Tax and Probate Planning

One of the goals of the estate planner is to minimize taxes and other estate administration costs such as probate fees. There are other equally, if not more important, goals such as providing for familymembers at death, ensuring adequate liquidity in the estate, and creditor protection to name a few. It is rare that every goal can be achieved the challenge of estate planning is to help the client set priorities among competing goals and ensure that the overall estate plan works harmoniously. Quite often, techniques  that minimize tax and probate fees create results that undermine or are in direct conflict with an individual's most basic estate planning objectives. The estate planner must understand the techniques available to minimize taxes and probate fees and, at the same time, grasp fully the implications of using each technique. In 1992, Ontario tripled its probate fees from $5 per thousand to $15 per thousand. The current fee structure still imposes the 0.5% rate on the first $50,000 of value but the remaining value is subject to the 1.5% rate. On the estate of $500,000, the fee would be $7,000 - not a huge sum. However, on an estate $5,000,000, the fee would be $74,500 and the advantage of reducing or eliminating the fee is obviously greater. One must always keep in mind the amount of the savings to be achieved and consider the costs involved to avoid the application of these fees are warranted.

Jointly held assets generally pass by right of survivorship to the surviving joint owner on the death of other joint owner. Therefore, jointly held assets do not generally form part of the estate at death and are not subject to probate fees. Life insurance proceeds payable to a named beneficiary are not considered an asset of the estate. This is based on the provisions of s.196(1) of the Insurance Act, which states that when life insurance proceeds are payable to a designated beneficiary, such proceeds are not part of the insured's estate and are not subject to the claims of creditors. Where a beneficiary has been designated under RRSP, RRIF or pension plan, the proceeds therefrom are generally not considered to be an asset of the deceased plan holder's estate. Because there is no equivalent provision to s. 196(1) applicable to RRSPs and RRIFs, there have been a number of cases where a creditor of a deceased person claimed that an RRSP owned by the deceased but designated to a specific beneficiary was nevertheless an asset to the estate and available to satisfy debts of the deceased.

The Estate Administration Tax Act, 1998 requires that a tax be paid "immediately upon the issuance of an estate certificate". The tax payable is based on the "value of an estate" which is defined to mean "the value which is required to be disclosed under s.32 of the Estates Act of all the property that belonged to the deceased person at the time of his or her death less the actual value of any encumbrance or real property that is included in the property of the deceased person. Therefore, the only liabilities of the deceased which will reduce the value for the purpose of calculating probate fees are the value of encumbrances against real property. This would include mortgages as well as other types of encumbrances such as construction liens. No other debts or liabilities may be deducted in calculating probate fees. Until a recent amendment of the Estate Administration Tax Act, 1998, the disclosure by an executor of the value of the estate on the application for probate was never audited or verified by the Estates Court or by the Ontario Government. The value of the estate on which the probate tax was calculated was provided in an affidavit sworn by the executor of the estate. However, with recent amendment introduced by Bill 173 (effective for applications for certificate of appointment of estate trustee filed on or after January 11, 2013), the Minister of Revenue will be authorized to assess or reassess the probate tax within four years after the day the tax became payable.