When a person dies with a will, the assets owned by the deceased person will form part of the deceased’s estate, but may or may not require what is known as a “grant of letters probate” before the executor is able to administer the assets amongst the deceased’s beneficiaries. Obtaining a grant of letters probate, now known as obtaining a Certificate of Appointment of Estate Trustee With (or without, as the case may be) a Will, is a court process whereby a court grants an order that certifies that the will of a deceased person is valid and also confirms that the person(s) named in the will (i.e., the executor(s) or estate trustee(s)) has the legal authority to administer the estate. Once the application for probate is submitted to the courts, it can take a few months (sometimes close to a year for some courts) before a probate certificate is granted and delivered.
Despite the will in itself giving the executor legal authority to deal with the estate assets, certain third parties, like financial institutions, will require a probate certificate before they will act on the instructions of the executor with respect to the assets of the deceased person. The reason is simple – when they can rely on such court order, they will have statutory protection from liability. They do not want to become embroiled in a lawsuit initiated by beneficiaries claiming that they permitted the transfer of a particular asset to the wrong person. In addition, certain legislation requires that this court order be granted in order to transfer certain assets, like real estate registered under the Land Titles Act. Furthermore, if a person dies without a will (known as dying intestate), this court order will almost always be necessary to appoint someone to administer such deceased person’s estate.
The most significant reason why clients care about whether or not an estate needs to be probated (other than the time factor noted above and paying legal fees) is due to the Ontario estate administration tax, which is the highest of all the provinces. Such tax must be paid to the courts upon submitting the application for probate. Currently, the tax is approximately 0.5% on the first $50,000 of the estate, and 1.5% for all amounts over and above $50,000. As of January next year however, the Ontario government will fortunately be removing the 0.5% tax; therefore, any estates under $50,000 will be free from any estate administration tax. However, if you think about an estate valued at one million dollars (not too farfetched given the price of real estate these days), it would still mean that almost $15,000 would be payable as estate administration tax.
Generally, if an asset does not fall into the estate, it will not be subject to the probate process or the estate administration tax. There are a few circumstances where an asset would likely be considered to NOT fall into the deceased’s estate, including the following:
- The property was owned by the deceased person and another person or persons as joint tenants with the right of survivorship (e.g., real estate)
- Bank accounts where the deceased person and another person or persons were joint account holders
- Financial accounts payable to a named beneficiary (except where the estate is named as the beneficiary) (e.g., RRSPs, RRIFs, TFSAs, etc.)
- Private pensions plans payable to a named beneficiary
- Insurance policies payable to a named beneficiary
In the above examples, the property would be able to pass to the beneficiary or other joint owner (as the case may be) without falling into the deceased person’s estate and, in turn, without requiring probate. However, it should be noted that the ultimate determination of who will receive property depends on the document governing the property (if applicable), the will (if a valid one exists), and Canadian legislation and case law.
Other notable instances where some of the deceased person’s assets may not form part of his or her estate include:
- Bank accounts held by the deceased person with balances under $50,000 (although, each financial institution has its own internal policies regarding when they would not require a probate certificate, and will make a decision on a case by case basis in its sole discretion)
- Real estate owned solely by the deceased as registered owner, if the property falls under the “first dealings exemption” (i.e., if the deceased person acquired the land while it was registered under the Registry System and he/she continued to be registered on title without interruption after it was converted to the new Land Titles registry system, then the property could be exempt from probate)
- The property was gifted by the deceased person during his or her lifetime
- The property was transferred to an inter-vivos (living) trust established during the deceased’s person’s lifetime
- The property is part of a secondary will (aka corporate will) that contains assets that do not require probating (e.g., corporate shares)
Some of the above examples, such as the inter-vivos trust and secondary will, are useful and common estate planning techniques and strategies that can be implemented with the assistance of estate lawyers. If real estate and corporate shares are a part of a person’s portfolio of assets, it would be prudent to also consult with lawyers who are competent in all three areas of law: estates, real estate and corporate/commercial. In addition to the legal consequences, there could likely be tax consequences when implementing such estate planning techniques and transferring assets; as such, consulting your tax accountant would also be recommended.