In most cases, an Executor (now called an Estate Trustee) cannot deal with the assets of a deceased person without the formal authority to do so. The Estate Trustee will not have this authority until he or she has been granted a Certificate of Appointment of Estate Trustee (previously referred to as ‘probate’). This is a document issued by the court. It is obtained by submitting an Application for a Certificate of Appointment of Estate Trustee to the court along with a certified cheque or bank draft to pay the required estate administration tax (previously referred to as ‘probate fees’).
To determine the amount of estate administration tax or ‘EAT’ that is owed, the Estate Trustee must accurately report the value of the deceased’s assets as of the date of death. The only deduction permitted is the amount owing on a mortgage against an Ontario real property which was owned by the deceased at death. EAT is $5 per $1,000 of estate value up to $50,000 plus $15 per $1,000 of estate value over $50,000 with no upper limit. For example, on an estate worth $1 million, the EAT owing is $14,500 ($250 on the first $50,000 plus $14,250 on $950,000).
When estate planning, people have always been interested in avoiding EAT as much as possible. As a result of changes to the law effective January 1, 2015, the amount and type of information about the deceased’s assets that must be reported and documented by the Estate Trustee will has increased. As a result of the changes, it is likely that the desire to avoid EAT will meet with renewed vigour.
There are a number of strategies that can help minimize or avoid EAT. However most of these strategies need to be applied before a person dies. For example,
• Avoiding EAT is usually possible if a couple owned assets jointly and the surviving spouse was named as beneficiary of life insurance, RRSPs, RRIFs and similar assets.
• Using multiple Wills so that some assets can pass to beneficiaries without the requirement for a Certificate and without payment of EAT.
• Gifting assets during a person’s lifetime so that those assets are not owned by him or her at death and therefore not subject to EAT.
• Naming a beneficiary to receive assets such as life insurance where it makes estate planning sense to do so. If life insurance proceeds are payable to a person or a trust rather than the estate, the proceeds are not subject to EAT.
• Holding assets in a trust established during a person’s lifetime as such assets will usually not be subject to EAT.
If you are considering any of the above strategies for avoiding and reducing EAT, call 613.836.9915 or email [email protected] to make an appointment to meet with me at our law office in the Kanata-Stittsville area of Ottawa. We will review your unique situation and discuss your goals so that we can recommend appropriate strategies. There are tax and other considerations that must be reviewed before any decision is made or action taken.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.
Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.
