Ontario Probate Tax
Probate is a court certificate confirming that the estate trustee named in a will is authorized to deal with the deceased’s assets. (It is also called a “certificate of appointment of estate trustee.”)
Cost of Probate
The probate tax (the “Estate Administration Tax”) is about 1.5% of your estate’s value less real estate encumbrances. There are also legal costs to apply to the court for this certificate.
Will Your Estate Trustee (“Executor”) Need Probate?
An estate trustee needs probate to have authority over certain types of assets, such as public securities, large bank accounts, and real estate registered in the Ontario land titles system. A trustee does not need probate to deal with the following:
- jointly-held assets;
- shares of private corporations;
- personal and household effects; AND
- plans and other assets passing directly to a named beneficiary, such as life insurance, RRSPs, and RIFs.
If your estate trustee needs probate for some of your assets, the tax is not just calculated on those assets requiring probate, but calculated on all of the assets of the estate (less real estate encumbrances).
HOW CAN I ARRANGE MY ESTATE TO REDUCE OR ELIMINATE THE COST OF PROBATE?
You may use a combination of the following:
If you hold title to an asset jointly with someone else, such as your spouse or children, the survivor will automatically receive title to the property at your death.
If you do not want your survivor(s) to keep the jointly-held assets after you pass away but you want them to share the assets with other beneficiaries, you can create a bare or naked trust. To do this, you will get the other person to sign an acknowledgment that, while you are alive, they have no beneficial interest in the assets, that they will deal with the assets entirely as you direct, and entirely as your estate trustee directs when you die without asking for probate.
Without a bare trust acknowledgment, adding another person as a jointly-titled owner would normally be treated for tax purposes as a “disposition” by you of one-half of the value of the asset. (There is, however, a tax rollover between spouses.) Capital gains and land transfer tax would be payable by you, so careful planning is required.
As to your RRSP, RRIF and life insurance, you can name someone, such as your child, as the contingent beneficiary if your spouse dies before you, and your child can sign an acknowledgment now about how to deal with the proceeds on your death.
You can have two Wills: one for assets that require probate, and the second for assets that do not. The probate tax will be calculated only on the value of assets administered in the first Will. Both Wills could have similar distribution plans.
A Private Holding Company
The surviving directors of your private company would normally not require probate of your Will to transfer your shares in the company to your beneficiaries. However, using a private company has special tax considerations when transferring assets into and out from the company. Again, this requires careful corporate and estate planning.