], And never miss news, career opportunities and event announcements, 50 O'Connor Street, Suite 300 statute that governs Estate Administration Tax in Ontario. The change may be more expensive than you think. A client came into see me and wanted to transfer title to his property from his parents name to his and his wife. Any person who receives an Estate Certificate (also known as Probate) after January 1, 2020, is required to file an Estate Information Return within 180 days. Similarly, good legal advice can sometimes ensure the proper transfer of financial assets (investments and bank accounts) to a surviving spouse without or outside probate. 555 Legget Drive For example, a primary will contains all the assets that will need to be probated (e.g. How to avoid capital gains tax in Canada when selling property ... Here’s an example. He was concerned about land transfer tax because as a general rule, land transfer tax is always payable when a beneficial interest is transferred from one person to another, subject to excemptions such as inter-spousal transfers. It is a simple form, and has not changed under the new regime. The provincial tax is roughly 1.5% of the value of the probate estate. For example, in Ontario it is called an estate administration tax, while in other provinces they are referred to as probate fees. When a person dies they may leave behind belongings, real estate and other assets which is called their estate. Ontario has the highest Estate Administration Tax (EAT) the country. If you require a Certificate of Appointment of Estate Trustee, the estate administration tax (EAT) must also accompany the application to the Ontario Superior Court of Justice. Ontario’s probate tax is 1.5 per cent of the value of the assets that make up the deceased’s estate. “You might actually save tax overall because of how graduated tax rates work,” said Natale. Any person who receives an Estate Certificate (also known as Probate) after January 1, 2020, is required to file an Estate Information Return within 180 days. These changes, announced during the 2019 Ontario Budget, are intended to provide some relief from the onerous estate administration tax regime. If … t: 1 (888) 995-0075 In Canada, there is no inheritance tax. Remember that probate is a provincial matter. A few years ago, I acted for a couple who had both lost their spouses and had just been married. So be careful about distributing all of the assets of an estate before assessing what tax owing might result. If a child who is a joint owner happens to have creditors, then when the family home is sold, the creditors will often have to be paid before the sale proceeds can be disbursed to the parents. For parents who wish to make only one of the children a beneficiary under an insurance policy to avoid probate taxes, don’t do it. Many techniques exist to minimize probate fees, but many require proper planning by the testator prior to death. Proper tax planning before death can substantially reduce or even eliminate Estate Administration Tax. Instead the CRA treats the estate as a sale, unless the estate is inherited by the surviving spouse or common-law partner, where certain exceptions are possible. Effective January 1, 2020, Ontario eliminated estate administration tax (also known as probate tax) on estates valued under $50,000. Estate administration tax (i.e. Deadlines for filing an Estate Information Return (EIR) has also changed. The rate is $5 … But what happens if one or more of the children die before the parents, or one of the children has creditors, or wishes to purchase their own home, or separates from his or her own spouse, or the parents want to sell the home? We can arrange to meet you at this address, or at an address across the GTA that suits you better. The money goes to finance government programs and other costs. The executor is personally liable for the estate and its distributions. News Links Downloads. In most cases, that person is the grieving spouse or children. In estate planning, Canadians don’t have to contend with an estate tax the way U.S. citizens do. While this may seem a modest sum compared to other taxes, for individuals whose assets include valuable shares of a privately held corporation it is worthwhile doing some planning to avoid this tax altogether. The Ontario government is proposing to eliminate probate tax on estates valued under $50,000, and to ease the compliance regime involved in the filing of an estate administration return in the province. If all of the beneficiaries of a Canadian estate are resident in Canada, administration of an estate is relatively straightforward. Please contact us to arrange a meeting. MARITAL TRANSFERS. If you die without a valid will, your estate gets settled according to the laws of your province, rather than according to your personal wishes. An asset in joint names with a surviving person will be transferred to that person by operation of law (subject to some possible review that we shall discuss later) and not by operation of the deceased’s Will. The CRA can charge capital gains tax on anything you sell that makes a profit including stocks, bonds, real estate investments and other assets (most retirement accounts in Canada, however, allow you to defer paying taxes on gains until you actually withdraw the money you made). In order to apply to the Court for a Certificate of Appointment in Ontario, an application form must be filed with the Superior Court. Find out more. You must be 65 years old to establish alter-ego or joint spousal living trusts, which allow you to avoid capital gain taxation when transferring assets and minimizing probate exposure. Canada, Tel: 613-238-8080 They did this without seeking legal advice. If the parents want to sell the home and one or more of the joint tenant children do not, the cost to resolve the issue could be expensive. © Copyright - Miltons IP - All Rights Reserved 2020, Home ownership: joint tenants and tenants in common, Beneficiary designations: TFSA, RRSP, RRIF, pension, insurance, Dependent support obligations and challenges, Wills and marriage, divorce & re-marriage, Retention, revocation and destruction of wills, Disputes about actions of an attorney for property, Estate administration / executor services. swear or affirm the estimated value of the estate stated on your application form. Once your Will is signed, be very careful in making changes in asset ownership simply to save a few dollars in probate taxes. Calculating estate administration tax on an estimated estate value. Let’s say that years ago you paid $250,000 for a house in Ontario. Fax: 613-238-2098General Inquiries: info@nelliganlaw.ca. No. The changes will affect all estates that go through the Ontario probate process. (2) This section extends to cases where a grant of probate of the will or of administration to the estate of the deceased may not have been made within the period after the death of the testator or intestate within which a caution is required to be registered. If you think that you have been victimized by a ‘joint tenancy to avoid probate’ tactic which has reduced the size of the estate, please contact us. Charles Ticker is a lawyer with over 35 years of experience. Protect your Estate from Probate Fees for Free Call us today for a complimentary consultation 1-844-NO-PROB8 (844-667-7628) AVOID PROBATE FEES What is Probate? In Ontario, an estate trustee is the only person with the legal authority to manage or distribute an estate. The fees can be as high as approximately 1.5 per cent in Ontario, to no fees in Quebec (for notarial wills). Once your Will is signed, be very careful in making changes in asset ownership simply to save a few dollars in probate taxes. K1P 6L2, Probate tax is charged on the total value of a deceased person’s estate. Life insurance can be a handy estate planning tool. Changes for Ontario’s Estate Administration Tax On January 1, 2013, a new audit and reassessment regime went into effect for Ontario’s Estate ... Each strategy must be used properly, though, to avoid problems, and anyone contemplating the use of these strategies must obtain appropriate tax … Probate is a term that is often used to refer to the Estate Administration Tax (EAT), that is levied by the Ontario government of the estates of some deceased persons where the estate is worth $50,000 or more. 5 ways to manage estate costs. The couple then was advised by someone along the way that it would be much more efficient (and would avoid probate taxes) if they put their bank and other investment accounts into joint names. 2. ON, A Cautionary Tale: Plan ahead to designate the beneficiaries for your Ontario Pension. Five Mistakes To Avoid In Estate Administration. This is very good because Ontario’s probate tax is only levied on those assets that are transferred pursuant to the deceased’s Will. For instance, for bank accounts held in joint tenancy between a parent and adult child, the presumption is that the account IS part of the estate and must be probated – the onus of proving that the bank account is a gift to the adult child and not part of the estate lies on the adult child. R.S.O. This article provides some background on the EAT, discusses the changes that occurred and how life insurance products can help people deal with the new regime. All Rights Reserved. But if you’d been charged personal or business income tax, you would’ve had to pay $30,000 (assuming the same marginal tax rate; more if this income pushed you into a new tax bracket). 2. Estate Administration Tax (Ontario) The Estate Administrative Tax (probate fees) are payable on the total value of the assets that are being probated. This is as per the Ontario 2019 Budget. Amount of deposit (2) Subject to subsection (3), the amount to be deposited is an amount equal to the tax that will become payable by the estate under this Act. Any probate tax that is payable is not deductible in calculating income or capital gains taxes. [This article was originally published in the Jan/Feb 2012 issue of Fifty-Five Plus Magazine. Legislation: Estate Administration Tax Act. Most provinces charge a fee for probating a deceased's will - and make no mistake, this is a type of tax. The tax is currently about 1.5% of the value of assets flowing through the will probated with the court. Except where a spouse is a noncitizen, neither lifetime gifts nor bequests at … However, your Executor will still have to file your final income tax return (and also possibly pay capital gains taxes on some assets). This is difficult, but sometimes possible with very good legal advice to arrange with real estate. For those parents who want to give money to a child to purchase a house, it is better for the parent to have loaned (with a signed promissory note or registered mortgage) the money to the child and spouse with possibly a provision in the parent’s Will to forgive the loan as part of the child’s inheritance. Probate fees are a tax in Ontario called the estate administration tax. “Because you report 20% capital gain each year, it may allow you to stay in a lower tax bracket whereas if you record 100% of capital gain in one year that could bump you into the top tax bracket and in a province like Ontario you’d pay 53.5% tax on taxable capital gains in the top bracket.” After death, depending on the circumstances, it is from time to time possible to avoid probate entirely or reduce the amount of Estate Administration Tax if the estate can be reduced before probate. Leave a valid will. Purchase life insurance. However, an estate with beneficiaries living outside of Canada presents challenges for the executor, as distributions of property to non-residents involve a number of additional tax … Great weather, like avoiding probate taxes, is wonderful. © 2020 Nelligan Law. However, what many people don’t realize is that a “deemed disposition tax… Estate taxes do not, by and large, affect the vast majority of Americans, but to those who plan to leave millions upon their death, it pays in spades to understand recent changes to federal estate tax laws so that you can avoid, or at least reduce, estate tax liability. probate fees) of approximately 1.5% of the value of the deceased’s estate are payable during the certification process. This onus is often very hard to rebut. Probate fees, also called estate administration tax, are fees that are paid to the Ontario government. An attorney can guide you through the process of finding ways to ensure your heirs or … I very often see a surviving parent transferring one or more bank accounts, GICs or investment accounts into joint names with one or more of his or her children. The risk of a problem arising far outweighs the probate taxes that might be otherwise saved. Of course, this requires advance planning and preparation by the testator (the person making the will), and, a lack of dispute among the potential executors and beneficiaries. Not what the parent might have wanted. The proposed changes, announced Thursday … Making distributions too early. (Other websites state there are no estate taxes in … If the family home is jointly owned by the parents and a child who dies before the parents, that child’s share of the home could evaporate to the benefit of the parents and any other children who are also joint owners. Avoid probate fees. Deadlines for filing an Estate Information Return (EIR) has also changed. Probate /Estate Taxes in Ontario While death and taxes may be life’s only certainties, people generally dislike paying taxes. The Ontario Government has implemented a couple of changes to the calculation of Estate Administration Tax (EAT) which came into effect on January 1, 2020. Avoid planning for your estate and you can leave a significant income tax liability upon your death. Ottawa, ON CANADA K2H 9G1, Kanata office: Still, many people despise the Ontario tax, which tripled in the early 1990s. Estate Information Return This return is to be completed in addition to an application for a certificate of appointment of estate trustee submitted to the Courthouse (Ministry of the Attorney General). 1990, c. E.22, s. 11 (2). 200-15 Fitzgerald Road But the idea of having to pay the Province of Ontario a probate tax of 1.5 per cent appears to twist some people out of shape. One way to avoid payment of probate tax by the estate is to transfer assets — such as bank accounts and real estate — into the joint names of … As such, executing multiple wills in order to avoid paying estate administration taxes has become a common estate planning tool. Amount based on estimate (3) If the applicant is able only to estimate the value of the estate when making the application, the amount to be deposited shall be based on the estimated value. + read full definition) equal almost 1.5% of your estate’s value. One of the spouses later died and, by right of survivorship, the surviving spouse received almost all of the deceased’s spouse’s assets to the detriment of the children of the deceased’s spouse. Mississauga, ON L4Z 1S1. 1990, and such conveyances are not subject to the tax. Suite 800, 1730 St. Laurent Blvd. Executor’s Fees (compensation) Even here though, the documentation does little good if the investment has been used by the child during the parent’s lifetime with or without the parent’s knowledge. The child’s share of the parent’s estate may be diminished as a result. These taxes or fees can vary considerably from province to province. 2 (1) A tax determined in accordance with this section is payable to Her Majesty in right of Ontario by the estate of a deceased person immediately upon the issuance of an estate certificate. Insurance is another common issue. Estate planning is complex. Several years ago, the Supreme Court of Canada issued two decisions that said a bank account that is jointly owned does not necessarily become the property of the parent’s estate but, depending on the specific fact situation, can just as easily become the sole property of the surviving child. Other provinces, like where I live in Ontario, have higher probate fees. For some reason, Ontario’s probate tax (formally called Estate Administration Tax) seems to drive people crazy. Effective January 1, 2020, Ontario eliminated estate administration tax (also known as probate tax) on estates valued under $50,000. Effective January 1, 2020, Estate Administration Tax was eliminated for the value of all estates under $50,000. Alter ego trusts defer the tax until your death, while joint spousal trusts defer the tax until your spouse's death. Resource Centre. This bit of knowledge can sometimes be a dangerous thing. A parent may give a child a large sum of money to help the child purchase a house. Estate Administration Tax: An Overview Before Applying for a Certificate of appointment of Estate Trustee. We strongly recommend that you avoid these ‘joint tenancy to avoid probate tax schemes’ unless you: If you want proper advice that structures your estate in a way that is tax efficient and effective, please contact us. Does capital gains tax apply only to real estate? Estate Information Return This return is to be completed in addition to an application for a certificate of appointment of estate trustee submitted to the Courthouse (Ministry of the Attorney General). This field is for validation purposes and should be left unchanged. It is not nearly as large as income taxes on death, but it is still about $15,000 for every $1 million in the estate, with some exceptions. They try to avoid it by holding property with children as joint owners, thus keeping it out of the estate. It will be used by the Ministry of Finance to enforce compliance with the Estate Administration Tax Act, 1998. If a child who is a joint owner wishes to purchase his or her own home, he or she will have possibly lost the Ontario Land Transfer Tax Credit of $2,000 to which first time Ontario homebuyers are eligible. In most cases, spouses, however defined, arrange their assets so that both jointly own their home, have joint bank accounts, have investments in joint names or with each other as named beneficiaries and have each other as named beneficiaries, on life insurance/death benefit policies and RSPs/RIFs. Estate taxes do not, by and large, affect the vast majority of Americans, but to those who plan to leave millions upon their death, it pays in spades to understand recent changes to federal estate tax laws so that you can avoid, or at least reduce, estate tax liability. To serve you, we have offices across the Greater Toronto Area – Toronto, Scarborough, Markham and Mississauga. Send us an email and let’s talk about how we can help you. Estate planning is complex. These changes, announced during the 2019 Ontario Budget, are intended to provide some relief from the onerous estate administration tax regime. There are several ways to minimize or avoid provincial estate administration taxes. If letters probate are not required in a deceased’s estate, no probate tax is levied or payable. Executor’s Checklist Did not notice any comments regarding the Estate Administration Tax (Ontario) where (after 2020-01-01) the estate administration tax will be calculated as $15 for every $1,000 (or part thereof) of the value of the estate over $50,000. This means that the estate pays the taxes owed to the government, rather than the beneficiaries paying. Life insurance itself does not reduce your exposure to income tax on death — it’s simply used as a means to fund a tax liability on death so the estate does not have to be crippled to pay the tax. What problems are you creating if you die without a Will? 1998, c. 34, Sched., s. 3 (2). If your goal with the transfer is to avoid estate administration tax (probate), remember that this cost may not be that costly after all. It was a complex Will but it reflected the couple’s wishes. The most common effective technique after death is to arrange for the legal transfer of all assets to the intended beneficiaries without probate. At that time, you paid $7,000 in taxes and closing fees plus another $28,000 on additions and renovations to the property. real estate). Rather than make the estate the beneficiary (and thereby attracting probate taxes), the parent makes only one of the children a beneficiary (the child has promised the parent to share the insurance with his/her sibling). The amount of the fee is based on the total value of the property in your estate when you die. Usually this has been done to the detriment of the beneficiaries and is often the result of a discussion that a family member has had with a friend, bank employee or other person. pay the estate administration tax on the estimated value. Our address for deliveries in  Mississauga is: Miltons Estates Law 1998, c. 34, Sched., s. 2 (1). • Ontario estate administration tax (“EAT”) is essentially equal to 1.5% of the value of the assets passing under probate (Estate Administration Tax Act, 1998) • Probate, or a Certificate of Appointment of Estate Trustee with a Will is generally required to transfer assets in Most of the problems arising from attempting to avoid probate taxes can either be avoided or dealt with if a person seeks advice from a lawyer beforehand: The Supreme Court of Canada has said that if an investment is truly to be held by a parent and child with the parent’s intention that the investment form part of the parent’s estate on the parent’s death, there should be documentation reflecting this intention. 1. These are only some of the problems that can occur by parents transferring their home into joint names with one or more of their children. This can be a more complicated process, with higher … Assets that the deceased had before death but not at the time of death, such as insurance payable to a named beneficiary, assets where there is joint ownership with right of survivorship and real estate outside of Ontario are not included in the value of the estate. These ‘joint tenancy’ tactics invite hard feelings and expensive litigation; the potential savings (1.5%) are trivial, and the potential costs massive. You may also wish to name a secondary beneficiary, in case the primary beneficiary predeceases you. But even then, the fees are just 1.5% on estates exceeding $50,000. This amount is hardly worthwhile to put your entire estate plan into jeopardy. The new probate tax requirements are part of Ontario’s Estate Administration Tax Act, 1998. Free eBook on Probate in Ontario. A parent buys a life insurance policy with the intent to divide it equally between the parent’s two children. Recent revisions to the Estate Administration Tax Act (Ontario), under which the Province charges tax of approximately 1.5% of the value of an estate when a will is probated by the court (colloquially “probate fees”), should be of concern to everyone because of the new reporting, enforcement and penalty provisions in the Act, explains Susannah B. Roth of O’Sullivan Estate Lawyers. In Canada a beneficiary generally receives their inheritance tax free, and an estate is not taxed. The current Ontario Government has implemented a couple of changes to the calculation of Estate Administration Tax (“EAT”, often called probate fees) and the process for EAT refunds which are due to take effect January 1st. Our mailing address and address for service is: Miltons Estates Law Tax on capital gains In many cases involving second marriages, changing asset ownership to joint names to avoid probate taxes is simply a bad idea and one that should be avoided. What is Estate Administration Tax Estate Administration Tax, commonly referred to as probate tax or probate fees, is payable on the gross value of a deceased’s worldwide estate (less any mortgages on real estate located in Ontario) other than real estate located outside of Ontario. What is inheritance tax? We understand that, at death, taxes often become payable, and we can grudgingly accept income or capital gains taxes that become due at death. This type of bad planning might take the form of transferring the family home into the names of the parents and one or more children (who may or may not live in the family home any more) as joint owners. Acting as an Attorney for Property – Know these top 10 tips. There will also be “estate administration tax” – more commonly called “probate fees”. For those who want to put the family home into joint names with the children or a child and avoid probate taxes, don’t do it. Ottawa If a child who is a joint owner separates from his or her own spouse the child’s share of the parents’ home might form part of the child’s matrimonial property–and more so if the child and his or her spouse have been living in the home with the parents. But if the child and spouse later separate and the house is sold, not all of that gift may be returned to the child due to the house being a matrimonial home. As death and death taxes occur at the same time, you may find that in this situation a significant portion of your income is taxed in a top tax bracket and therefore could lose about 45 percent to the CRA. Don’t count on it. But in choosing your retirement home , you also want a safe place, clean water, good food, and … Ontario Estate Administration Tax Calculator Effective January 1, 2020 the Estate Administration Tax is eliminated for taxable estates of $50,000 or less, and will be reduced by $250 for larger taxable estates. This is done to attempt to avoid estate administration tax which is payable only if the will is probated. John Peart is a partner with the Ottawa law firm of Nelligan O’Brien Payne LLP and part of its Wills and Estates Group. However, many other ‘plans’ designed to minimize probate fees are in fact very bad planning, which create for more trouble and cost than they avoid. Minimizing fees There are a number of ways to minimize probate fees. The less property you have in your estate when you die, the lower your probate fees. Learn about income tax returns, consumption taxes, and the programs and credits for individuals, self-employed persons and members of a partnership. Conveyance of property from trustees to beneficiaries is one of the exemptions provided for in the Ontario Land Transfer Tax Act R.S.O. The person administering the estate (the administrator or executor) must follow the legal requirements of the estate administration process. Joint ownership of certain assets with your spouse is one method. It is better to make either the estate or all of the children beneficiaries instead. For example, a testator may decided to make his or her adult children joint tenants on a bank account. To serve you, we have offices across Ottawa. Doing estate planning solely to avoid the probate process and probate fees is like choosing the place you retire based solely on the weather. These provincial taxes are not federal income tax. Name beneficiaries on your life insurance policies. Your Situation Low income, owner, parent, student, support payments… Income Tax Return Online filing, deadline, line-by-line help… 1. Gifts to purchase a home also can be a problem. Avoid Probate Taxes at your Peril – How Not to Plan your Estate. have carefully thought through all of the consequences, execute the plan very carefully and ensure that it is part of a well integrated estate plan, and. On the parent’s death, the child forgets the promise made and keeps the insurance proceeds. On an estate with assets of $500,000, Ontario will levy probate taxes of just under $7,500 (there is a slight sliding scale on the first $50,000 of assets but for discussion purposes, the percentage of 1.5 per cent is used). You do so, however at your peril. Kanata, ON K2K 2X3, St. Laurent office: Contact us for more information. Suite 304, Tower A Recent revisions to the Estate Administration Tax Act (Ontario), under which the Province charges tax of approximately 1.5% of the value of an estate when a will is probated by the court (colloquially “probate fees”), should be of concern to everyone because of the new reporting, enforcement and penalty provisions in the Act, explains Susannah B. Roth of O’Sullivan Estate Lawyers. I agree that Ontario’s probate tax—the highest in the country and just slightly higher than British Columbia—is annoying. The Ontario Government has implemented a couple of changes to the calculation of Estate Administration Tax (EAT) which came into effect on January 1, 2020. Life insurance is paid directly to the named beneficiary, so the funds never become a part of the probate estate, therefore not subject to probate taxes and fees. He has helped executors administer … The most common effective planning technique to employ prior to death to minimize probate tax is the use of ‘dual wills’, whereby assets that require probate pass under one will, and other assets that often do not require probate (such as the shares of a family or private business) pass under a separate will that is not subject to probate. The difference, though, is that while you can do little about gasoline or alcohol taxes, you might be able to arrange your affairs to defer probate taxes. The changes will affect all estates that go through the Ontario probate process. John is Certified as a Specialist (CS) in Estates and Trusts Law by the Law Society of Upper Canada and is also a member of the International Society of Trust and Estates Practitioners. Ottawa, ON K1G 3, e: info@ontario-probate.ca Several times a year, I will meet a family who has organized the family assets to avoid paying any or very much Ontario probate tax. But even then, the fees are just 1.5% on estates exceeding $50,000. In Ontario, probate fees are: For your property to qualify for the preferential capital gains tax rate, you must not be in the business of investing in real estate. 15th Floor, 4 Robert Speck Parkway Effective January 1, 2020, Estate Administration Tax was eliminated for the value of all estates under $50,000. It will be used by the Ministry of Finance to enforce compliance with the Estate Administration Tax Act, 1998. Then, in the 1990s, the fees were increased and converted into the Estate Administration Tax. 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