2015 Update on Probate Fees / Estate Administration Tax

Background

 In the late 1990’s the Ontario government increased probate fees from a fixed nominal fee to a percentage of the value of the estate.  Probate fees were set at 0.5% of the value of the estate up to $50,000 ($250) and 1.5% for all assets above $50k (eg. $15k on an estate of $1m). 

 A media frenzy ensued and suggested manoeuvers to avoid probate fees in various ways such as transferring properties and bank accounts into joint tenancy.  Unfortunately some of these poor attempts to avoid a minimal probate fee resulted in more serious (income) tax problems and family disputes. 

 Another structure to avoid probate fees was the creation of multiple Wills, one Will for assets to be probated (assets which required a probate certificate – eg. real estate) and another Will for assets not requiring probate (eg. shares in a private corporation).  This structure was approved by the courts and remains a common tool of estate planners.

 There were also administrative challenges.  Applicants were required to:

 •              Stipulate the value of the estate in the application (prior to being granted probate).  While this was often manageable or capable of estimation by a spouse or close child, it was extremely challenging for any individual with limited knowledge of the finances of the deceased (for whatever reason); and

 •              Submit probate fees with the application prior to having access to the funds of the deceased.  This required negotiations with the deceased’s financial advisors to release funds to pay probate fees.

 The system lacked any meaningful system of auditing estate values and there was little motivation for estate trustees to voluntarily pay more tax if they later discovered assets or found that assets had higher value.

 The New Rules

 As of January 1, 2015, the Ontario government introduced significant revisions to try to fix these problems (and of course increase their revenues).

 •              Probate fees are no longer required to be submitted with the probate application.

 •              Once probate is granted the estate trustee has 90 days to submit the probate fees along with a sworn “tax return” setting out the total value of all assets as of the date of death. 

 The estate trustee must now:

 •              Maintain the information supporting the value declared on the “tax return” and an auditing system will be in place shortly for verifying the submitted values.  Estate trustees are liable personally for additional probate fees owing and may be subject to fines for non-disclosure (even after final administration and distribution of the estate).

 •              Disclose assets which do not require probate to administer, such as cash and cash on deposit at a Canadian or foreign bank (eg. cash held in a shoe box in a closet or a safety deposit box).  

 •              Report and pay additional probate fees if values are later found to be higher than originally submitted or new assets are found. 

 The consequences to estate trustees for breaching the continuing obligation or swearing a false statement and/or not disclosing all assets of the deceased include imprisonment for up to 2 years and/or a fine of double the amount of the probate fees payable.

 Conclusion

 Presently, probate fees are not terribly onerous and legal structures are available to avoid or minimize the amount payable.  However, attempts to reduce probate fees must be measured and appropriate in the context of each estate plan and should only be done with the assistance of a lawyer skilled in estate planning to avoid triggering family disputes or tax problems.  It is also possible that probate fees will increase in the future (and may ultimately resemble an estate tax).

 There are serious liabilities on estate trustees already and the recent changes have added more.  This confirms the need for good legal counsel to provide advice and guidance throughout the administration process. 

 Note – I have used the expression “probate” because most people understand this now outdated expression.  The current term for “probate” is “estate administration” and a “probate fee” is “estate administration tax” and “probate certificate” is a “certificate of appointment of estate trustee”.