In Ontario, unlike some jurisdictions, there is no “estate tax” payable on death. This doesn’t mean that the government doesn’t get its “fair share” of your wealth. After all, if anything is certain in life, it’s death and taxes (and taxes payable on death!)
Instead, we have Estate Administration Tax (commonly known as “probate fees”) and capital gains tax (taxed as though you had sold all of your property and investments immediately before your death). This blog post will focus on Estate Administration Tax (“EAT”) and a commonly used planning strategy to reduce the amount of EAT that may otherwise be payable.
What is Estate Administration Tax?
Estate Administration Tax is a tax that is payable to the Ontario government at the time your executor submits your Will to the Court for “probate”. EAT is payable on the combined value of the assets included in a probated Will. Under Ontario’s current probate fee structure, the first $50,000 of value is not taxable. Thereafter, tax is levied at the rate of $15 per $1,000 (1.5%). To probate a will that includes assets worth $1 million, the Estate Administration Tax would be $14,250.
What Does it Mean to “Probate a Will”?
When a Will is “probated”, the Superior Court of Justice issues a document called a Certificate of Appointment of Estate Trustee With a Will. This document is a court finding of the following:
The fact of the death of the deceased
The date and place of death
A confirmation of the appointment of the executor(s) named in the Will; and
The fact that the document submitted to the Court is the “last” Will of the deceased
The Certificate of Appointment of Estate Trustee is used to prove these facts to all persons dealing with the executor(s).
It is important to remember that probate is not a legal requirement. Your executor(s) derive their authority from the Will itself and not the grant of probate. However, in most cases, it is a practical requirement in order to satisfy banks, financial institutions, the land registrar and other third parties that the individual(s) appointed under the Will as executor(s) have the authority to act for the estate.
What Assets are Subject to Estate Administration Tax?
Estate Administration Tax is payable on the combined value of all assets that are governed by the Will that is being submitted for probate.
There are certain assets which, practically speaking, do not require probate in order for your executor to be able to effectively deal with the assets. Examples include personal effects and shares in private corporations. However, if these assets are covered by the same Will as assets which do require probate, then the value of the “non-probatable” assets must be included in the value of the estate for the purpose of determining the EAT payable.
For this reason, a common “probate planning” strategy has developed whereby a person executes two Wills: one Will that covers assets that will likely require probate, and a second Will that covers assets that will likely not require probate. This way, if your bank requires your executor to obtain a Certificate of Appointment of Estate Trustee from the Court before they will hand over control and custody of your bank accounts to your named executor, your estate will only have to pay EAT on the value of the assets that are covered by that Will. The value of any assets that are covered by your second, “non-probatable” Will, will not be included in determining the amount of EAT payable.
The authority for using multiple wills arises from the law as it presently stands based on a 1998 Ontario Supreme Court decision in a case called Granovsky Estate v. Ontario. While this case represents the current state of the law, there is no guarantee that, at the relevant time, there will be a saving of probate fees based on the law in effect at that time and the future administrative practices of third parties who hold your assets.
Do you own shares in a private company? Get in touch to discuss how a dual will structure may save your estate 1.5% of the value of your corporate holdings.
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