If you have a will and have appointed an executor, you may have the idea that when you pass away, all your assets will need to go through probate before they are distributed to your beneficiaries. This isn’t always exactly what happens. In some cases, only certain assets need probate and in others, probate is not even necessary.
There are many misconceptions about probate floating around, and it is hard to know which information is correct. Small details and differences can have a large effect on the probate process, and often, well-meaning friends and family will give advice based on their own experience which may not apply to your circumstances.
Here we will attempt to simplify and shed some light on the topic of probate in Ontario. This should help you make educated decisions in regard to your estate planning or duties as an executor. Keep in mind that this is a general overview, and should not be taken as legal advice.
What is Probate?
Generally, probate is defined as the process of dealing with a person’s estate when they have died. However, people also use the word probate to refer to the official process of being appointed the legal representative of an estate and for paying estate taxes.
The official document that gives a person legal standing as the executor or administrator of an estate used to be called “letters probate” or “letters of administration”. However, currently, in Ontario, this document is simply called an Estate Certificate.
What does probate mean in Ontario?
First, probate procedures set out a formal process to smoothly transfer assets from one generation to another. Additionally, probate fees are payable on estate assets that pass to beneficiaries via the probate, or administration process.
What are probate fees?
Probate fees are more accurately described in Ontario as an Estate Administration Tax (EAT). This is a tax that is charged as a percentage of the value of certain assets of an Estate. This is not a federal tax, but a provincial one. Ontario has one of the highest rates of estate tax in Canada, making some forethought and estate planning a worthwhile exercise.
For example, in 2021, if an estate is worth less than $50,000, there are no probate fees or EAT payable.
On an estate over $50,000, there are no fees or tax payable on the first $50,000 worth of estate assets. For the remaining estate assets over $50,000, $15 is payable per $1000 value.
It should be noted that this tax is paid out of the funds of the estate, and not by the estate representative.
When is Probate Required in Ontario?
Not all estates require probate.
The main rule of thumb is that if an estate certificate is needed to collect, distribute, transfer or manage the estate, then probate will most likely be required.
There are some assets that, depending on how they are held, or how beneficiary designations have been recorded, could either require probate or not. For example, life insurance. If a life insurance policy specifically names a beneficiary or beneficiaries, it will not be considered part of an estate. However, if the policy lists the estate as the beneficiary of the life insurance, the payout may be subject to probate.
The size of the estate also makes a difference. If an estate is under $150,000 probate can be applied for through the small estate court process, otherwise, an estate must be probated through the more extensive application for estate certificate process.
What Assets are Subject to Probate in Ontario?
Assets that may trigger probate in Ontario include:
- Real estate (located in Ontario)
- Bank Accounts (including foreign or out-of-province banks)
- Investments
- Vehicles and vessels
- Property of the deceased that was held in another person’s name
- Other property, wherever situate including: Goods, intangible property, business interests, and insurance (if proceeds are left to the estate)
Note that a mortgage or secured loan would be noted and subtracted from the value of the asset for probate purposes. For example, if there was a mortgage of $500,000 on a property that was worth $750,000, the value of the property for the purposes of probate would be $250,000.
Jurisdiction is another factor that can determine if probate is done in Ontario, rather than elsewhere in Canada. For example, even if you, as executor, live in Ontario, if the deceased lived in another province, it is likely that the estate would be probated in that province, especially if the bulk of the estate is located there. It is possible to have a local lawyer facilitate this for you, and executors handling estates that are far away often find it helpful to have local counsel available to help them through the process.
What Assets are Not Subject to Probate in Ontario?
If an estate asset is held jointly with a spouse or has a designated beneficiary (such as an RRSP or TFSA that has a named beneficiary) in many cases, the asset can be transferred without requiring probate. In most cases, property that is held jointly with someone other than a spouse does not enjoy a right of survivorship that would exclude it from the probate process.
Assets that are not subject to probate in Ontario include:
- Real estate (outside Ontario)
- Real estate within Ontario that was converted to land titles after purchase by the deceased owner and that has not had any “dealings” since
- Assets that were held jointly (there are exceptions)
- CPP death benefit
- RPPs, RRSPs, RRIFs, and TFSAs with a beneficiary designation or beneficiary declaration
- RDSPs to which the deceased subscribed to but was not a beneficiary
- Debts owing by the deceased, such as credit cards, car loans, or lines of credit that are unsecured.
How to Minimize or Avoid Probate in Ontario?
There are several ways to minimize or avoid probate. It should be noted that each of these methods has benefits and disadvantages and should not be used without obtaining legal or tax advice. In many circumstances, although it may seem counterintuitive, it makes more sense from a logistic or tax perspective to pay the probate fees rather than trying to minimize them.
Several legal tools that may be helpful in maximizing your estate include:
- Joint tenancies
- Trusts
- Succession planning for business assets and corporate shares
- Gifts
- Designating beneficiaries for certain investments and insurance
- Multiple wills
Once someone has passed away, it is usually too late to avoid or minimize probate. This is why the process of estate planning, reviewing your assets and liabilities from the perspective of a transfer of wealth from one generation to the next, with help from a professional estate planner, is a valuable exercise.
Which assets are included in an estate for the purpose of probate is a complex topic. So complicated that even the Ontario government website suggests that you “contact a lawyer for legal advice about whether you need to apply for an estate certificate”. Estates are not something most people like to think about until they have to, and being thrown into the middle of dealing with an estate often happens at an emotional time.