Probate in Ontario is a legal process that occurs after someone has passed away. Understanding how probate works is a key facet of proper estate planning.
During probate, a court confirms the authenticity of a person’s will and ensures that it’s legally valid. The court also validates that the executor, the person responsible for administering the deceased's estate and sometimes called an estate trustee in Ontario, has the authority to distribute the assets as outlined in the will.
If there is no will, then the court will appoint someone to act as the estate trustee.
Probate doesn’t automatically happen when someone dies. Instead, one of the main duties of an executor in Ontario is to apply for probate if it’s needed.
To apply for probate, an executor must gather all the documents needed, such as a signed copy of the will, an official death certificate, a list of beneficiaries and a list of the deceased’s assets and liabilities, among other things, and compile them all into an application which gets filed to the court. They must then present these documents to the appropriate Ontario court, fill out any required forms and pay for any application and probate fees.
Not all estates will have to go through the probate process, such as those with very limited assets, though many large or complex estates likely will. It comes down to the nature and value of the estate's assets and the potential for disputes involving the chosen executor, beneficiaries, or those excluded from the will.
Typically, in Ontario, if the deceased solely owned real estate property or assets held by a financial institution, the estate normally must be probated.
What Are Probate Fees in Ontario?
In Ontario, probate fees are essentially an estate administration tax paid to the government of Ontario when an estate is probated.
Depending on the size and complexity of an estate, probating a will can be an arduous and expensive process, and the probate taxes are meant to help cover the court’s expenses in overseeing the administration of the estate and validating the will.
The amount of probate fees depends on the combined value of your estate’s assets. Note that the estate ultimately pays probate fees, but it’s up to the estate trustee to pay the estate tax in full.
How to Calculate Probate Fees in Ontario
Probate tax is calculated based on the value of the estate probated. To calculate the value of an estate, the executor must include things like:
- Real estate located in Ontario, minus the value of things like mortgages or liens. Real estate held in joint tenancy with a right of survivorship should not be included in the calculation.
- Investments (except those with named beneficiaries)
- Bank accounts (except joint accounts)
- All vehicles appraised at fair market value
- Valuable collections (like art, wine, coins, etc.), which should also be appraised
- Furniture and other personal property
Based on the combined value of the previously mentioned estate assets, a person can then estimate an accurate value of the estate. Your executor must provide this valuation when they file a probate application.
In Ontario, there is no probate fee for estates with assets up to and including $50,000. For estates of more than $50,000, tax is charged at a rate of $15 for each $1,000 of the estate’s value.
For example, an estate valued at $500,000 would be calculated as follows.
$0 on the first $50,000
$500,000 - $50,000 = $450,000
$450,000 ÷ $1,000 = $450
$450 x $15 = $6,750
So, the total probate fee in this example would be $6,750.
Even though the fees ultimately come from the estate, the executor is responsible for paying them when they file their probate application. In most cases, the Ontario probate taxes must be paid using a certified cheque or money order at the time of filing.
If it’s a substantial estate and the trustee would have trouble paying for it, it’s possible to get the funds as a loan from the estate or a beneficiary. This loan would ultimately be reimbursed using assets from the estate once the probate process is finalized.
How to Avoid Probate Fees in Ontario
Avoiding or minimizing probate fees in Ontario is an understandable concern, as estate fees can certainly add up and affect the value of an estate.
Here are some practical strategies to help reduce probate fees on your estate assets:
- Create a Valid Will: Ensure you have a well-drafted and up-to-date will that clearly outlines your wishes for asset distribution. A properly executed will can make the probate process smoother and potentially reduce fees.
- Name a Joint Owner: For assets like real estate or bank accounts, consider naming a joint owner with rights of survivorship. When one owner passes away, the asset automatically transfers to the surviving owner, avoiding probate.
- Use Beneficiary Designations: Some registered assets, like retirement accounts (RRSPs, RRIFs), investment accounts, life insurance policies, pension funds, and some financial accounts (TFSAs), let you designate a beneficiary directly. These assets will then typically pass outside of the estate directly to the named beneficiaries.
- Gifting Assets Before Death: Consider giving estate assets to your beneficiaries before you pass away. This can significantly reduce the value of your estate and, thus, correspondingly reduce your probate taxes.
- Joint Ownership of Real Estate: If you own real estate, consider holding it jointly with a spouse or family member. Upon your passing, the property may automatically transfer to the surviving joint owner.
- Review and Update Regularly: Estate planning is not a one-time task. Life circumstances change and laws may evolve. Regularly review and update your estate plan to reflect your current situation and goals. This can also help minimize potential disputes between beneficiaries later if you’ve told someone they would inherit an asset like a coin collection, but you did not update your will to reflect this planned gift. Willful makes it easy to update your documents regularly or after major life events.
- Consider Tax Implications: While the primary goal is often to minimize probate fees, be mindful of potential tax consequences when implementing these strategies. Seek advice to balance both objectives.
Prepare Yourself for Probate
Preparing yourself for probate is key to effective estate planning. A well-thought-out and executed estate plan can help significantly reduce probate fees. A crucial aspect of preparing your will for probate is to choose the right executor. The executor plays a central role in the probate process and in ensuring that your final wishes are carried out effectively.
It can be a long, complex and time-consuming process requiring organization, clear-headedness and financial literacy. So be sure to choose someone with the skills needed to take on the responsibility.
Don’t underestimate the importance of keeping detailed records of your assets. The estate trustee will have to gather a great deal of information and financial records to prepare for probate.
The more information you can have at the ready, the better; including things like updated appraisals of your most precious possessions, tax assessments, bank accounts, debts and details about your investments can be incredibly helpful. Your executor will rely on these records to efficiently manage the estate and navigate the probate process.
While it’s undoubtedly challenging to broach the topic of death, it can be a smart move to communicate your intentions to your beneficiaries and executor.
Open communication can help prevent misunderstandings and conflicts among family members. Try to anticipate potential challenges or disputes that may arise during probate and address them in your estate plan.
This proactive approach can help prevent delays and legal complications during the probation process.