Probate Issues and Requirements – Hull on Estates #89

December 11, 2007 Hull & Hull LLP Hull on Estates, Hull on Estates, Podcasts, PODCASTS / TRANSCRIBED Tags: , , , , , , , 0 Comments

Listen to Probate Issues and Requirements

In this week’s episode of Hull on Estates, David Smith and Allan Socken discuss probate issues, including the need for probate, when its avoidance is possible, and new developments relating to probate matters.


Probate Issues and Requirements – Hull on Estates Podcast #89

Posted on December 11th, 2007 by Hull & Hull LLP


David Smith:  Hello and welcome to Hull on Estates.  You’re listening to our next episode in our continuing podcast series.


Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.   Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills.  Now, here are today’s hosts.


David Smith:  Good morning.  Today Allan Socken and I are speaking about probate issues.  Good morning Allan.


Allan Socken:  Good morning Dave.


David Smith:  Allan, we thought what we would do in terms of our discussion today is talk about probate generally and when probate is required in the province of Ontario.  Now, Allan, am I correct in thinking that probate is now a somewhat dated term?


Allan Socken:  Yes, that is correct, David.  Currently the term that is used when probating a Will is referred to as a Certificate of Appointment of Estate Trustee with a Will, or the case when a person dies without a Will or intestate, someone can apply for what is known as a Certificate of Appointment of Estate Trustee without a Will.


David Smith:  Oh, so that’s interesting.  So, you know, quite a different terminology.  But I suppose in a sense it’s more lay friendly in the sense that it’s more evident exactly what we’re talking about.  I think the term “probate” maybe had confused the public or created this impression that there was something arcane or overly legally technical about a process which simply consists of proving the validity of the last Will, right?


Allan Socken:  Correct.


David Smith:  And Allan, why do we need probate?  And let’s refer to it as probate just because it’s easier in terms of using less words.  But why do we need probate typically in an estate?


Allan Socken:  Typically probate is required because it enables the estate trustee, which was previously known as an executor, to administer the assets and liabilities of the estate as well as the fact it gives some comfort in showing that even if the Will subsequently is determined not to be the last Will and testament of the deceased, any administration of the estate that has taken place until a subsequent Will is shown to be valid, leaves the executor without any liabilities and the administration that has occurred to date is fine.


David Smith:  Right, and that’s an important point, isn’t it, Allan?  I mean, if we’re, as lawyers, advising executors, we want to make sure first of all that if they come in with what they say is the last Will, we want to be sure that it is the last Will, because if it isn’t the last Will, it’s of no validity.  And the Court’s seal of approval, which is what a Certificate of Appointment of Estate Trustee is, essentially tells the world that this executor has the authority to act under that Will.  So I completely agree with that in terms of the kind of advice that we want to render to an executor.  If we’re thinking about who demands probate, who are we talking about here, Allan, in terms of we think about estate assets.  Say we’ve got a house, some bank accounts, an investment portfolio, a safety deposit box, that all belong to the deceased.  Can we ever access those without a Certificate of Appointment of Estate Trustee with a Will, or is it typically going to be required?


Allan Socken:  Well there are certain circumstances in which a Certificate of Appointment of Estate Trustee with or without a Will is actually not required.  For example, property that is registered under the Registry Act does not require probate, as it was known previously.  In addition, insurance policies, RRSPs, RIFs, all usually don’t require probate as well.


David Smith:  Well let’s talk briefly about that point.  I guess when we’re talking about those last three items you mentioned: insurance policies, RIFs, RRSPs, typically the deceased is going to designate a beneficiary of those assets other than the estate, correct?


Allan Socken:  Correct.


David Smith:  And the purpose, of course, for doing that is to avoid estate administration tax or probate fees.  And maybe this is a good segway to just briefly talk about the merits of probate fee avoidance, because if we do designate beneficiaries of certain assets that pass outside of the estate, we avoid probate tax.  Likewise, if as a testator and in planning my affairs, I jointly hold assets with someone rather than keep them in my own name, when those assets pass by right of survivorship to the survivor, they’re not going to be included in the probate fee calculation either.  So I think, Allan, over to you in terms of can you just explain to us briefly what you understand about estate administration tax, or probate fees as they’re commonly called, and how they’re charged?


Allan Socken:  Well, up until recently, until 1998, there was a direct tax levied in respect of probating a Will.  In a sense, it was probate tax.  However, in 1998, the Supreme Court of Canada found that the probate fees charged by the Ontario government were unconstitutional, as they constituted a direct tax which could not be levied by regulation.  The government then proceeded to quickly amend the process and would satisfy the Supreme Court’s ruling by invoking something that is known as the Estate Administration Tax, 1998.  And in effect, what the tax says is that for $5 for each $1,000 or part thereof of the first $50,000 of the value of the estate, is taxable and $15 for each $1,000 or part thereof by which the value of the estate exceeds $50,000, is taxable.


David Smith:  I guess, and you know, Allan, my initial thought whenever I hear that figure is, you know, gee, that’s just not a really exorbitant tax.  I mean the lengths to which people will go in avoiding this tax, which amounts to $250 bucks on the first $50,000 of assets, sometimes seems to me to be overkill.  I mean this is not a terribly significant tax in monetary terms, is it?


Allan Socken:  No, because it all comes down to what is meant by the term “value of the estate”.  In a sense, value of the estate simply means the assets held under Section 32 of the Estates Act.  In effect, the actual assets held by the deceased at the time of death, excluding assets that were jointly held and other things that we’ve talked about before such as insurance policies that don’t form part of the estate.  So in effect, even though the tax sounds as though a substantial amount of the deceased’s assets will in fact be taxable, in reality, a substantial portion through careful estate planning may in fact not be taxable.


David Smith:  Right, that’s an excellent point, Allan.  And I think that’s something that everyone should sort of…you know, estate planning is a good thing and the idea of avoiding estate administration tax…I mean, nobody likes paying taxes for sure.  But I sometimes wonder when I think about the costs associated with litigation over questions left by a deceased respecting whether or not he intended a jointly held asset to result back into his estate or her estate, I sometimes wonder if had the deceased known what would have occurred and saw how much litigation can be created by these attempts to avoid probate tax which often can create confusion, whether in fact that testator might have said, you know what, I’m going to just pay the tax and keep things simpler.  Of course, the other way to do this is to document your intentions and, you know, that’s a subject for another podcast altogether.


Allan, I think just to keep things moving along and to do as much of a sort of survey of probate as we can do, let’s talk a little bit about probate as it relates to litigation.  Now I understand that there’s a specific document or appointment called a Certificate of Appointment of Estate Trustee during Litigation.  You’re familiar with that?


Allan Socken:  Yes, David.


David Smith:  And Allan, how does that work?  How does that differ from an estate trustee with a Will or an estate trustee without a Will?


Allan Socken:  An estate trustee during litigation simply means that the estate trustee or executor is in charge of preserving the assets and dealing with them with the best interests of the beneficiaries in mind throughout the litigation process.  And that’s more it’s job as opposed to simply administering all the assets when the Certificate of Appointment of Estate Trustee is given.


David Smith:  Right.  I think the fundamental distinction is what you touched upon which is, well, the biggest difference is an estate trustee during litigation, as you implied, cannot distribute the estate.  His or her job is to hold the assets, do everything that an estate trustee would otherwise do but not distribute the estate, so that a judge can ultimately decide who’s going to get the money.  And an estate trustee during litigation is appointed by a Court Order and is under the supervision of the Court.  And that’s a fundamental distinction from the appointment of another estate trustee.  In a sense, it is a grant of probate but it’s strictly regulated and restricted by the appointment of the Court and the fundamental distinction, as you and I both alluded to, is the fact that the estate trustee during litigation simply cannot distribute without an Order of the Court.  And I might point out, even if all the beneficiaries or litigants to the case agree that they can distribute, that estate trustee during litigation is still going to say to them, you know what, I was appointed by a Court Order and I’m going to need a Court Order directing me to distribute even if you all agree that I can distribute.


Now if…an interesting question which I’ve run into frequently is, do you need probate or an appointment of an executor to commence litigation or respond to litigation?  Have you run into that issue before, Allan?


Allan Socken:  I have with several of my files, actually, to date.  And that’s a very interesting question, simply because from my understanding, is when commencing litigation, initially an executor or estate trustee is not required.


David Smith:  What’s the applicable rule, Allan?


Allan Socken:  The applicable rule is Rule 9.03(1) of the Rules of Civil Procedure which states “where a proceeding is commenced by or against a person as executor or administrator before a grant of probate or administration has been commenced and the person subsequently receives a grant of probate or administration, the proceeding shall be deemed to have been properly constituted from its commencement”.


David Smith:  Right, and you know, that’s important, Allan, because you can often have cases where litigation is necessary.  Where, for instance, an estate needs to commence a claim to comply with the limitation period or what have you.  And it may be that the litigation has to be commenced before the grant of probate occurs.  And so what the lawyer in that situation should do is issue the proceeding naming simply the estate of, you know, John Doe, as the plaintiff and then later on, he can correct it in terms of naming the appointed estate trustee once probate is granted.  So, you know, that’s a good point as well.


Allan, I’ve really enjoyed this discussion.  It was good to touch upon these various issues and certainly I look forward to podcasting with you in the future.  And I think what we can leave this podcast with is a better understanding, hopefully, of the situations in which probate is required.


Allan Socken:  Thank you very much, David.  I also enjoyed podcasting with you.


David Smith:  Thanks Allan.  Take care.


Allan Socken:  You too.  Bye-bye.


This has been Hull on Estates with the lawyers of Hull & Hull.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.


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