Probate Process in Ontario EAT and Other Considerations

Wills & Estate Law
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Probate Process in Ontario

Many people have heard the term “probate” before, usually in the context of wills. But what is probate, and what does the probate process entail? This article will introduce the concept of “probate” in Ontario, what this process is, the court’s role in the probate process, what assets are subject to probate, some steps in the probate process, a few challenges in the probate process, and tips on a smoother probate process. Importantly, this article includes general information about the probate process that is publicly available and should not be taken as legal advice. We recommend contacting our trusted legal professional for guidance that applies to your specific circumstances.

Essentially, probate is the process of certifying a will by a court as well as confirming and giving authority to the estate trustee named in the will. An estate trustee is also known as the executor of the estate and is named in the will as the individual (or individuals when there are joint estate trustees) responsible for carrying out the directions and wishes contained in the final will. The property and assets owned by the deceased are referred to as the estate and must be distributed according to the deceased’s final will, or according to intestate succession laws contained in the Succession Law Reform Act, RSO 1990, c. S. 26 (“SLRA”). Probate is a critical process that is required before the distribution of a deceased’s estate can begin. Without probate there can be uncertainty regarding the deceased’s final directions and the estate’s status, and distribution of the estate will be delayed.

Probate Tax

Part of the probate process requires paying the Estate Administration Tax (the “EAT”, which was also commonly referred to as “probate tax”) on assets that form part of the deceased’s estate. The EAT is payable on estates worth more than $50,000; for this reason, estates worth less than $50,000 are not subject to the EAT and the first $50,000 of an estate is free from the EAT calculation. Since January 1, 2020, the rate of the EAT is calculated as $15 for every $1000 for estates valued at $50,000 or more. For instance, an estate that is valued at $300,000 would be taxed accordingly:

Estate Value of $300,000
$0 for $50,000
$300,000 – $50,000 = $250,000
$15/$1000 for remaining $250,000 of the estate
$250,000/$1,000 = $250
$250 x $15 = $3,750
Total EAT: $3,750

Therefore, the total EAT payable on the $300,000 estate in our example is $3,750. However, not all assets are subject to the EAT and thus, the total value of an estate for the purposes of calculating and paying the EAT may exclude certain types of assets. Additionally, an estate that is worth $40,000 would not be subject to the EAT as it is valued below the $50,000 threshold.

Some individuals may try to reduce the amount of EAT payable on their estate through careful estate planning. For instance, parents may add their adult child as a joint tenant to the title of a property owned solely by their parent. In the event of the parent’s death, the child would inherit the entire property through the right of survivorship without having to pay the EAT. However, two issues arise: (1) if the child never resided at the property capital gains tax; and (2) presumption of resulting trust.

Estate Administration Tax vs Capital Gains

In this example, if the child never lived at the property, they will not be able to claim a principal residence tax exemption, and as a result could be subject to a capital gains tax when selling the property. Capital gains tax is a higher tax rate than the EAT, because a capital gains tax is half of the increased value of an asset. Capital gains taxes arise in instances where investment-type residential properties are sold and were not declared as a primary residence – the principal residence exemption avoids the capital gains tax at the time of sale. For instance, if an individual owns a residential property that is not their principal residence and they originally bought this property for $500,000, but are now selling it for $1,200,000. The capital gain on the sale is broken down as follows:

Capital Gains
Original purchased price: $500,000
Present day sale price: $1,200,000
Capital gain = $1,200,000 – $500,000 = $700,000
Capital gains tax is 50% à 50% of $700,000 = $350,000

If the owner added their adult child to the title of this subject property as a joint tenant and the adult child never resided at the property, then the above capital gains tax could apply even when the adult child goes to sell the property after inheriting it. Now, if this same property was left to the owner’s adult child in the parent’s will instead of using joint tenancy, the inheritance will be subject to EAT and the breakdown is as follows:

EAT
$0 for $50,000
$1,200,000 – $50,000 = $1,150,000
$15/$1000 for remaining $1,150,000 of the estate
$1,150,000/$1,000 = $ 1,150
$1,150 x $15 = $17,250

If the child never resides at the property and therefore, does not claim the principal residence exemption, the sale of the property can still be subject to the capital gains tax. However, the capital gains tax would be split between the deceased parent’s estate and the adult child. For instance, if the parent bought the property in 2010 at $500,000, and the adult child inherits the property following the parent’s death in 2020 when the property is valued at $1,200,000 and then goes to sell the property in 2024 when it valued at $1,400,000 the following break down applies.

Capital Gains Paid by Deceased Parent’s Estate
Original purchased price: $500,000
Value at the Time of Death: $1,200,000
Capital gain = $1,200,000 – $500,000 = $700,000
Capital gains tax is 50% à 50% of $700,000 = $350,000

 

Capital Gains Paid by Adult Child
Original value at time of inheritance: $1,200,000
Present day sale price: $1,400,000
Capital gain = $1,400,000 – $1,200,000 = $200,000
Capital gains tax is 50% à 50% of $200,000 = $100,000

The total taxes that the adult child pays are $117,250; an EAT of $17,250 at the time of inheritance of the property and $100,000 of capital gains tax when selling the property because it was declared their primary residence. However, for more details and assistance with estate planning we recommend consulting an accountant or one of our estate lawyers.

Alternatively, if the parent in this example had added the adult child to the title as a joint tenant, the adult child becomes the sole registered owner through the right of survivorship and does not pay any EAT. However, another more complicated issue arises: the presumption of a resulting trust.

Presumption of Resulting Trust

A resulting trust is deemed to occur when a parent adds their adult child to the title of an asset as a joint tenant without any value paid by the adult child at the time of this change. Essentially, without paying for their position as a joint tenant, the adult child does not “buy in” the value of the asset and the parent adds this adult child as a joint tenant to the title of the asset for “free”; this is referred to as a gratuitous transfer. In such instances, following a parent’s death the adult child becomes the sole registered owner through the right of survivorship. However, courts typically presume a resulting trust in such instances particularly where the parent’s reasoning or intention for adding their adult child as a joint tenant is unclear.  Additionally, a resulting trust can also occur in other circumstances such as between a grandparent and an adult grandchild.

For instance, if in the above example the parent added their adult child as a joint tenant to the title of the subject property and the adult child didn’t pay any portion of the value of the property in exchange for being added to the title, then when the parent died the property automatically goes to the surviving joint tenant (i.e., the adult child). However, the adult child only holds the legal title of the property and the beneficial ownership of the property is treated as if it were held by the parent’s estate.

The consequences of a presumption of a resulting trust are serious as it divides the title of the property after the death of the parent into legal and beneficial ownership. The legal ownership (i.e., the title of the property) is held by the adult child who became the registered owner through the right of survivorship. However, the beneficial ownership is kept by the deceased parent through their estate. The beneficial interest can be open to claims from other beneficiaries under the parent’s will, or if they were intestate, to the next of kin, which can lead to complex, costly, and extensive estate litigation.

Without adequate evidence about the parent’s reason for adding their adult child as a joint tenant, the court adopts this presumption of resulting trust. One reason the court prefers this approach is that for a gift to be found, the person making the gift must objectively intend it to be a gift, transfer the item/asset into the possession of the recipient and the gift must be irrevocable.  In essence, a resulting trust presumes that because the parent’s reasons for adding their adult child to title as a joint tenant are unclear, therefore, a gift was not intended. This presumption will only be found after the parent’s death but can prevent the adult child from selling the property even though they have the legal title to the property because they are holding the property in trust for the benefit of their parent’s estate. Any sale proceeds could be subject to claims through the parent’s estate.

Thankfully, the presumption of resulting trust can be rebutted and planned for accordingly but it is a complex situation that requires the guidance of an experienced estate planning lawyer. For this reason, we recommend consulting a lawyer if you are concerned about a resulting trust occurring or if you are facing these circumstances.

Certificate of Appointment of Estate Trustee

Once the probate process is complete, the court will issue a Certificate of Appointment of Estate Trustee with a Will or a Certificate of Appointment of Estate Trustee without a Will in an intestacy (“CAET”). The CAET confirms the testator’s death as well as the identity and appointment of an estate trustee (i.e., an executor of the estate). The CAET can be used to begin administering the deceased’s estate according to their will, or according to the laws of intestate succession if there was no will. For instance, an Estate Trustee with a CAET can now begin to act on behalf of the deceased estate as an agent while following the directions and instructions in the final will. Assets that are located or held in an institution, such as bank accounts, will require a CAET to allow distribution of such assets.

For instance, if a testator was on title to a property as a tenant in common with an 80% interest in the property and left that interest to their child in their will, a real estate lawyer will require a CAET before they can begin preparing the correct transfer documents to change the ownership from the parent to the child. In another example, if a testator had a bank account that they left to their child, neither the estate trustee nor the child will have access to that bank account until the bank receives the CAET.

Both the real estate lawyer and the financial institution rely on the CAET to confirm the following information: the estate trustee, the validity of the will, the identity of the child/beneficiary, and the directions contained in the will.  All parties external to the estate have to be certain that the appropriate process has been followed and minimize their risk of fraud or improper access.

Court’s Role in the Probate Process

The court’s role is to review the final will and determine whether it is the true final will of the deceased testator and that the will was properly drafted and executed. There can be severe consequences if the final will was improperly drafted or executed mainly, the court can declare a partial or complete intestacy in the deceased’s estate.

For instance, if there were no witnesses to the final will being signed and executed by the testator the court can deem the will as invalid and ultimately reject it. The result is a deemed intestacy, where the directions within the will cannot be enforced because the will cannot be certified or “probated” by the court.  Another example that comes up frequently is handwritten notes on a printed and typewritten will, and whether the handwritten notes are valid. Handwritten notes are difficult to certify for several reasons but the main issue that courts have found are whether the handwritten notes are to be incorporated and read together with the typewritten will.  In Lagrandeur Estate (Re), 2021 ONSC 3447 the court noted that the will was invalid and ruled it an intestacy because the handwritten portion of the will did not specify whether it was to be incorporated into rest of the typewritten will. However, this case occurred in prior to changes in will compliance, and the court

Thankfully, the standard of compliance with the final will requirements in the SLRA changed in 2022 from absolute compliance to substantial compliance. This change now grants the court discretion to validate wills that substantially conform to the requirements in the SLRA. Notably, the SLRA excludes wills and codicils that have been electronically executed from an application to the court for validation (section 21.1(2) SLRA).

In instances of intestacy, the court also has the power to appoint an estate trustee pursuant to section 29 of the Estates Act, RSO 1990, c. E.21 in the probate process. Generally, such circumstances can arise when the deceased died intestate or their selected estate trustee is unavailable with no alternative left to act as estate trustee, or under other special circumstances. When there is no estate trustee available or named, the court will prioritize the deceased’s spouse or common law partner who have a first right to apply to act as the deceased’s estate trustee. Following the spouse or common law spouse, the deceased’s adult child, parent, adult grandchild, adult sibling, or adult nephew/niece are able to seek appointment as the estate trustee for the deceased.

What is Subject to Probate?

Typically, assets that are owned solely by the deceased are counted in the calculation of the estate value and are therefore, subject to the EAT. Assets that are subject to EAT include real property and bank accounts that are owned solely by the deceased and personal property such as clothing, jewellery, furniture, and collections. The fair market value on the deceased’s date of passing is used to determine the value of such assets for the purposes of calculating the estate value and the EAT. For instance, an individual who was the sole registered owner of a house dies on January 1, 2024. The fair market value of the deceased’s house will be determined as of January 1, 2024.

As touched upon earlier in this article, not all assets are subject to probate and will therefore, be excluded from the EAT calculation. For instance, assets that are held jointly, and specifically as joint tenants with the deceased, will automatically pass to the surviving joint tenant(s) through the right of survivorship. Such assets will not form a part of the deceased’s estate because this jointly held asset remains in the hands of the surviving joint tenant(s). Generally, assets that pass outside of the estate (as in the previous joint tenant example), will not form part of the deceased’s estate and will not require probate.

However, assets that are held as tenants in common are treated differently.  Assets that are held as tenants in common do not automatically pass to the surviving tenant(s). Instead, the deceased’s interest in the asset becomes part of their estate. For instance, where a deceased was a tenant in common with an 80% interest in a house and where the remaining 20% was held by a relative, the fair market value of the house will be fixed as of the date of death for the deceased and 80% of that fair market value will be counted towards the value of the deceased’s estate.

Key Steps in The Probate Process

The starting point for probate is determining if the deceased had a final will.

Intestate (i.e., deceased did not have a will)

1.      Does the deceased have a final will? Testate

A properly drafted and executed final will is necessary for administering an estate according to a testator’s wishes and directions.

Intestate

If the deceased did not have a will, then the deceased is considered to have died intestate.

2.      Who will act as the estate trustee? Testate

The final will appoints the estate trustee – the individual who is responsible for managing and administering the deceased’s estate according to the instructions contained in the final will.

Intestate

If they did not have a will and died intestate, the deceased’s spouse or common law partner has a first right to apply to act as the deceased’s estate trustee. Next in line is an adult relative of the deceased such as a child, parent, grandchild, sibling, or nephew/niece.

However, the court has the capacity and discretion to appoint the deceased’s estate trustee in instances where the listed estate trustee(s) is/are unavailable, unable, or unwilling to act, or when intestacy occurs and there is no listed estate trustee. If you are considering act as estate trustee, there are significant obligations that belong to the estate trustee and that can carry some significant personal liability. Ultimately, acting as an estate trustee is a very serious commitment.

3.      Has the court received an application for a CAET without a will? Testate

Before filing an application for a CAET with a will, ensure that you have evidence of any renunciation by an estate trustee (if applicable) and prepare your documents for filing the application. Determine which court to file the application.

Intestate

Before filing an application for a CAET without a will, you should confirm if an application has not already been started and submitted with the court.

The forms to complete the probate process are available online through the court services website, and additional information about the probate process can be found through the Ontario government’s website.

4.      Prepare a list of assets belonging to the deceased, and that form part of the deceased’s estate. If you are acting as an estate trustee, you will have to prepare a list of the assets owned by the deceased and that form a part of the deceased’s estate for the purposes of calculating the EAT, if applicable.
5.      Submit an application for a CAET without a will. The forms to complete the probate process are available online through the court services website, and additional information about the probate process can be found through the Ontario government’s website.
6.      Pay the EAT, if applicable. As part of issuing a CAET without a will, the court will require payment of the EAT, if applicable.

The Role of an Estate Lawyer in The Probate Process

An experienced estate lawyer can assist with the probate process. For instance, if you are acting as the estate trustee, you can consult an estate lawyer to understand the full scope of an estate trustee’s obligations and the processes for which the estate trustee is responsible. An estate lawyer can also complete and file the application for probate. Importantly, a trusted estate lawyer should act as a guide for the estate trustee as they navigate the challenges of administering an estate and probating the will.

Some common challenges in the probate process include locating the deceased’s will, creating a full and accurate inventory of the deceased’s assets, complexity of the probate process and navigating court procedures, legal fees and costs, tax planning implications, potential for disputes and emotional stress.

Probate can be a challenging process but there are ways to manage some of these challenges that will depend on your in the administration of an estate.

For estate trustees and beneficiaries, it is key to keep lines of communication open with beneficiaries and be transparent about the process. Other tips for a smoother probate process can include: learning more about the probate process, keeping organized records and keeping track of deadlines, consulting with professionals and communicating with beneficiaries.

Ontario, Probate Process, Wills and Estate Law
Disclaimer

The Content is current as of its original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose. Content is provided solely for informational purposes. It is not intended to be legal or other professional advice or an opinion of any kind. You are advised to seek specific legal advice by contacting members of MBLAW (or your own legal counsel) in relation to your specific legal issues.

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