What is Probate?
In all estates, the estate trustee will need to consider whether they must “probate” the estate. The probate process is conducted by the proposed estate trustee submitting a court application to obtain a Certificate of Appointment of Estate Trustee. This Certificate confirms that the named estate trustee is the person with the authority to deal with the assets of the estate.
In addition to confirming the status of the estate trustee, probate also includes paying Estate Administration Tax (commonly referred to as probate tax).
Do I need to Probate?
Whether or not probate is needed typically depends on the nature of the assets in the estate and who the estate trustee needs to deal with to administer the estate.
With limited exceptions, sales of real estate by an estate, or transfers of real estate from the estate to a beneficiary will require the estate trustee to have the Certificate. Banks or other financial institutions will also often require the Certificate prior to releasing funds to the estate trustee.
Certain assets can pass outside of the estate and will not require the Certificate before being transferred to the appropriate party. For example, assets that have a designated beneficiary like an RRSP, TFSA or life insurance policy will not flow through the estate and will not need a Certificate before they can be provided to the designated beneficiary. However, if no beneficiary was designated, these assets will default to the estate and probate may still be required depending on the policy of the financial institution holding the asset.
Who can apply?
The person with the right to apply for the Certificate depends on whether the deceased died with or without a Will.
If the deceased had a Will, the estate trustee named in the Will has the right to apply. Before dealing with the assets, the named estate trustee can choose to renounce that position and pass the right to apply on to the alternate named estate trustee in the Will if there is one.
If the deceased died without a Will, the Court has the right to appoint an Estate Trustee Without a Will. [i] The spouse of the deceased or person with whom the deceased was living in a conjugal relationship immediately prior to death is the person with the first right to apply, and then the next of kin in order of kinship have the right to apply. Anyone with a better right to apply must renounce if someone of further kinship is seeking the Certificate. The person who is seeking to be appointed as the Estate Trustee without a Will must reside in Ontario and may be required to post a security bond for up to twice the value of the estate.
How is Estate Administration Tax Calculated?
The Estate Administration Tax (“EAT”) is calculated based on the date of death value of the assets in the estate. Anything that was in the name of the deceased without a designated beneficiary will be included in the calculation. This includes, bank accounts, investments, vehicles, personal property and real estate. Therefore, assets like RRSPs, life insurance policies, and TFSAs with a designated beneficiary will not attract EAT. Assets that are held jointly with another person with a right of survivorship will also not be included in the calculation, although further analysis is needed when the asset is held jointly with an adult child. Real estate that is located outside of Ontario is not included and will need to be dealt with in the jurisdiction where the real estate is located. The date of death value of security registered against Ontario real estate can be deducted from the value (i.e mortgages, secured lines of credit, liens).
For applications made after January 1, 2020, the first $50,000 does not attract tax. For the amount over $50,000 the tax is calculated based at 1.5% of the value rounded up to the nearest $1000. The tax is payable by the estate at the time the Application for the Certificate is filed.
Laura Geddes is an Associate Lawyer who practices in the area of estate planning and administration. For more information on this or any other issues, contact Laura via email at [email protected] or call 519-660-7714.