Probate is one of the most common words in estate law and one which I find is often misunderstood.
The term “Probate” comes from the old court Rules where Letters Probate were issued. These days, and since 1995 in fact, Probate has been replaced with a Certificate of Appointment of Estate Trustee – With or Without a Will.
Probate Fees are now referred to as Estate Administration Tax, which is governed by provincial legislation in Ontario. Currently, Estate Administration Tax is payable as follows:
$0.00 on the first $50,000.00 of an estate
$15.00 for each thousand beyond that.
That is 1.5% of the value of the estate after the first $50,000.00 of the estate. This is payable at the time the Application for a Certificate of Appointment is submitted to the court.
Estate Administration Tax is one of the main reasons that, as an estate planner, I am often asked how to plan around the need for a Certificate of Appointment of Estate Trustee, or reduce the estate’s exposure to Estate Administration Tax.
On the estate administration side, I am often asked by Estate Trustees whether a Certificate of Appointment is required, and how that can be determined.
In the planning process, there are many ways to effectively plan for, or reduce the estate’s exposure to, Estate Administration Tax. This includes the use of multiple Wills (i.e. corporate and personal Wills) and beneficiary designations on life insurance policies and investments, among other things. However, as with any type of estate planning, we have to work closely with our clients to make sure all pieces of the estate plan fit together. This includes full disclosure and discussion of how assets are owned, if there are beneficiary designations named on assets, and what the benefits and disadvantages of doing so may be in their particular situation.
As an estate planner, I am often asked about joint ownership of property with adult children, with the assumption that at the death of the parent, jointly held assets will pass outside of the estate, and therefore avoid the need for a Certificate of Appointment of Estate Trustee. In the right circumstances, this option can be explored, but it must be done cautiously, and after consideration of all the circumstances. There are many circumstances in which creating joint ownerships can leave a host of issues more concerning than payment of the Estate Administration Tax. In particular, parents should be aware that there is a presumption of resulting trust that applies to jointly held assets with adult children, and as such, the law assumes that the adult child is holding the asset in trust for the beneficiaries of the estate. As such, there should be clear evidence as to the parent’s intention for the disposition of the jointly owned property at death. For example see David Waites’ previous blog on joint accounts.
On the estate administration side, a lawyer can review the assets of the estate and from there, generally advise whether a Certificate of Appointment is likely to be required. However, it is often a misconception that a lawyer determines whether a Certificate is required. In fact, it is the asset holder itself that imposes that requirement. Ultimately a Certificate of Appointment is protection to an asset holder that the Will has “court approval” as the Last Will and Testament of the deceased. For example, financial institutions will often release assets limited to a certain value before requiring a Certificate of Appointment. If the financial institution is releasing assets without requiring a Certificate of Appointment, they will likely have an Indemnity form for the Estate Trustee to complete. This protects the financial institution in the event a later Will is located, and it is determined that the financial institution has released the funds to the wrong Estate Trustee. The general rule is that transferring Real Estate that was held in the deceased’s sole name requires a Certificate of Appointment. However, there are a few exceptions to this and title to the property can be reviewed to see whether an exemption applies to any particular scenario.
As a note, if any asset requires a Certificate of Appointment of Estate Trustee in order for the Estate Trustees to deal with it, the value of all of the assets of the estate need to be included in the value of the estate for purposes of the application for a Certificate of Appointment of Estate Trustee – even if that bank account, for example, was released without the bank requiring a Certificate of Appointment, or the vehicle could otherwise be transferred without it. The Estate Trustee’s obligation is to provide the value of the estate – i.e. all of the property that belonged to the deceased person at the time of their death. The only deductions that can be taken from that value is the amount of any encumbrance registered on real property – i.e. the amount outstanding on any mortgage, or line of credit, that is secured against the real property.
In addition to considering the nature of the assets which form part of the estate, there are other benefits to a Certificate of Appointment of Estate Trustee, or times in which a Certificate of Appointment of Estate Trustee will be necessary. For example, if a Will is challenged, if there is uncertainty as to the terms of the Will, or if there is a potential claim to be brought against the estate, it may be necessary or advisable for the Estate Trustee to apply for a Certificate of Appointment of Estate Trustee.
As is the case in many others areas of law, creating a will, changing ownership of assets, or administering an estate without proper legal advice may lead to a number of unexpected or problematic consequences. November is make a will month. I encourage everyone to ensure they have a valid will in place.