Your estate plan should include strategies to reduce Ontario Estate Administration Tax (“OEAT”, formerly referred to as “probate fees”). OEAT, at 1.5 percent of the value of your estate in excess of $50,000, is the highest provincial rate in Canada.
Estate Administration Tax is payable when a “Certificate of Appointment of Estate Trustee” (formerly known as Letters Probate) is required by third parties, such as banks and investment dealers before they will release property to your executor or estate trustee. The Certificate of Appointment of Estate Trustee confirms that your Will is valid and that the estate trustee (formerly known as an executor) has the legal authority to administer the estate.
To minimize your Ontario Estate Administration Tax and, often as important, to reduce the time required to settle your estate, your estate plan should include the three strategies below to legally exclude assets from your estate that are subject to OEAT.
Using Two Wills:
As a shareholder of a corporation, probate can create a challenge in the timely transfer of ownership to your estate, it raises valuation issues and adds an additional layer of cost based on the fair value of the shares at the time of death. One strategy is to have two valid Wills, the first to deal solely with specific assets, such as the shares of your corporation, which do not require OEAT. Other assets which require probate can be dealt with in your second will. In absence of the second will, all assets passed to your estate, including the shares of the corporation, would be subject to OEAT. This additional 1.5% cost can be significant if your company is based on the corporate assets held at the date of death.
Holding Personal Assets In “Joint Tenancy”:
Assets held in joint tenancy or jointly (such as bank accounts) pass automatically to the other owner and will not form part of your estate for OEAT purposes. You can generally transfer property into joint tenancy with your spouse with no income tax consequences but transfers to children may result in a deemed disposition of a portion of the asset which can trigger a capital gain. You should seek tax advice before adding a joint tenant to any financial asset.
Do consider that, as a result of a transfer to joint ownership, these assets or investments may be exposed to claims from creditors of the other owner. Also, a transfer into joint ownership may result in the loss of your control of the assets or investments as any subsequent transaction involving the asset will require the consent of both parties. It is wise to seek legal advice.
Ensuring Financial Assets Have Designated Beneficiaries:
Certain assets are excluded from your estate if a named beneficiary is designated. For example, RRSPs, RRIFs, TFSAs and life insurance proceeds (including the value of annuities, issued by a life insurer) do not form part of your estate if a beneficiary has been designated and therefore the proceeds legally bypass OEAT. Therefore, you could designate an immediate member of your family (such as your spouse, child or grandchild) rather than your estate as the beneficiary of these assets.
Need help with your estate planning? The experienced team of professionals at Ernst and Company is available for personalized assistance. Contact us today.
