Tag: Estate Administration Tax

28 Jul

Estates, Art and Valuations

Suzana Popovic-Montag Estate Planning Tags: , , , 0 Comments

This week, we thought it would be interesting to touch on the intersection of law and art in estate planning.

Artwork collections, whether they are comprised of a multitude of works or just one piece, are often a treasured possession of their owners, carrying deep emotional significance and/or high monetary value.

In estate planning, the sentimental and financial aspects of an art collection can become intertwined. Testators and beneficiaries may have competing views. As a simple example, there could be disagreement on whether the art should be sold or kept within the family. That being said, the valuation of artwork is an issue that may often fly under the radar.

The value of an artwork collection can have serious repercussions on the administration of an estate, especially where the estate lacks liquidity to address expenses, such as estate administration taxes.

However, the valuation of art may not always be a clear cut issue, as discussed by Mr. Ronald D. Spencer, Esq. in this article. Value can vary drastically over time, and even where the value remains stable, there may be significant challenges in finding buyers, especially where the collection is large or mostly one artist, potentially burdening the estate with tax liabilities and no certain financial benefit in exchange.

Understanding and articulating one’s wishes concerning their art collection is the first step in minimizing the impact of some of these issues. You will want to set out your intentions and wishes clearly in your will.

Avoiding uncertainty can be achieved through several means. The collection can be distributed through testamentary or inter vivos gifts where appropriate beneficiaries exist. It can be sold, which may carry advantages where the valuation and marketability of the collection is uncertain over time and a potential buyer has been found. Donation to a charitable organization is also an option, with many registered charities dedicated to art.

Whatever path one chooses, it is important to understand the implications from a tax and transactional perspective to ensure the most efficient execution of the testator’s intentions.

For those interested in further reading on art and law, our colleagues at Hull & Hull LLP have written some excellent blogs on the topic here and here.

Thank you for reading and have a great day!

Suzana Popovic-Montag & Raphael Leitz

08 Jun

Applying for Probate for a “Small Estate” in Ontario

Sanaya Mistry Elder Law, Estate & Trust, Wills Tags: , , , , 0 Comments

Further to our article “Small Estate” in Ontario now $150,000, as of April 1, 2021, for an estate valued at $150,000 or less, probate can be applied for through the small estate court process.

Applying for probate can be a complicating and overwhelming process, especially considering the fact that the steps that need to be taken or forms that need to be filled out can vary depending on the specific circumstances of the estate.

The Probate of a Small Estate webpage provides helpful information on some of the steps included in applying for probate of a “Small Estate”.

Please see below a brief overview of some of the important things to consider when applying for probate of a “Small Estate”.

Forms

Depending on the specific circumstances of the estate, different court forms may need to be completed and filed with the court.

As noted in Rule 74.1.03(1) of the Rules of Civil Procedure, “A person may seek a small estate certificate by filing an application for a small estate certificate (Form 74.1A) together with,

(a) a request to file an application for a small estate certificate or an amended small estate certificate (Form 74.1B);

(b) proof of death;

(c) a draft small estate certificate (Form 74.1C);

(d) if there is a will, the original of the will and of any codicils, together with the following evidence of due execution of the will and each codicil:

(i) if the will or codicil is not in holograph form,

(A) an affidavit of execution (Form 74.8) of the will or codicil,

(B) if the will or codicil contains an alteration, erasure, obliteration or interlineation that has not been attested, an affidavit as to the condition of the will or codicil at the time of execution (Form 74.10), or

(C) if each of the witnesses to the will or codicil has died or cannot be found, such other evidence of due execution as the court may require, or

(ii) if the will or codicil is in holograph form, an affidavit attesting that the handwriting and signature in the will or codicil are those of the deceased (Form 74.9);

(e) any security required by the Estates Act; and

(f) such additional or other material as the court directs.”

Estate Administration Tax

It is important to determine the value of the estate.

Estate Administration Tax is payable on the value of the estate of a deceased person as of the date of their death, for estates valued over $50,000.

For estates valued over $50,000, the Estate Administration Tax will be calculated as $15 for every $1,000 (or part thereof) of the value of the estate. Estate Administration Tax can be calculated using the calculator provided on this Ministry of the Attorney General webpage.

 

Service of Documents

Pursuant to Rule 74.1.03(3) of the Rules of Civil Procedure, “the applicant shall send or give the following documents to each person entitled to share in the distribution of the estate, including charities and contingent beneficiaries:

  1. A copy of the application for a small estate certificate (Form 74.1A) and of any attachments.
  2. If there is a will, a copy of the will and of any codicils.”

It’s important to note that pursuant to Rule 74.1.03(4) of the Rules of Civil Procedure, “if a person who is entitled to share in the distribution of the estate is less than 18 years of age, the documents listed in subrule (3) shall not be sent to the person but shall instead be sent or given to a parent or guardian and to the Children’s Lawyer.”

Further, a copy of the application and a copy of the will and codicil (if applicable) may need to be provided to Office of the Public Guardian and Trustee.

 

Detailed information in respect of “Small Estates” and the process of applying for probate of a “Small Estate” can be found in Rule 74 of the Rules of Civil Procedure.

 

Please note, the above-noted information has been provided for informational purposes only and is not legal advice. For more information, please reach out to one of our team members who will be happy to assist you.

Thank you for reading.

Sanaya Mistry

 

19 May

What People Need to Know About Probate in Ontario

Suzana Popovic-Montag Executors and Trustees Tags: , , 0 Comments

The settling of an estate often involves probate, where the court grants someone authority to act as an estate trustee for the deceased. This procedure, set out in the Estates Act, also confirms that the deceased’s will is their last Will and Testament.

Estate trustees can file an application for an estate certificate (previously called “letters probate” or “letters of administration”) at the Superior Court of Justice, in the county or district office when the testator or intestate lived at the time of death. If that probate application is successful, the court issues a Certificate of Appointment of Estate Trustee, evidencing that the person named in the Certificate has the legal authority to deal with the estate and its assets.

To help people avoid common errors when completing this application, the Attorney General provides this guideline.

As our associate Sydney Osmar has noted, people can now file probate applications, supporting documents and responding documents by email to the Superior Court. Sydney’s blog post provides helpful information about sending these documents electronically, with the email address for each court location listed here.

Certificates of Appointment are not always required when it comes to an estate administration, but they may be if:

  • the deceased died without a will;
  • the will does not name an estate trustee;
  • a financial institution requires proof of a person’s legal authority to receive the financial assets of the deceased; or
  • the estate’s assets include land or buildings that do not pass to another person by right of survivorship.

One of the times probate will not be necessary is if the entire estate is held jointly, and all assets are passing to the surviving joint owner by right of survivorship. A scenario might include a husband and wife with a joint bank account and a jointly-owned home. If the husband died and left the entire estate to his wife, probate can be avoided since banks and financial institutions have no risk exposure.

The Estate Administration Tax, better known as probate fees, is charged on the value of the estate if a Certificate of Appointment is applied for and issued. Estate trustees must be able to substantiate the fair market value of the assets at the time of death through documentation, such as financial statements or valuations from appraisers.

Assets to include in determining the value of an estate include real estate in Ontario, bank accounts (including foreign banks), investments, vehicles and insurance (if proceeds are left to the estate).

Once the value of the entire estate is determined, you can then calculate the tax. If the estate is worth $50,000 or less, you do not have to pay any probate fees, although you still must file an Estate Information Return within 180 calendar days after the estate Certificate has been issued.

For estates valued over $50,000, the tax will be calculated as $15 for every $1,000 (or part thereof) of the value of the estate on top of the $50,000 exemption. For example, for an estate valued at $240,000, you would only pay tax on $190,000, resulting in $2,850 being owed to the Minister of Finance.

Use this tax calculator to determine the amount owing.

The probate process can be time-consuming and confusing, which is why many people rely on the services of a wills and estates lawyer to help guide them through the paperwork and procedures.

Please feel free to call me if I can assist you – and have a great day,

Suzana Popovic-Montag

17 Feb

“Small Estate” in Ontario Now $150,000

Ian Hull Estate Planning, In the News Tags: , , 0 Comments

Last Friday, February 12, 2021, the Attorney General for Ontario announced changes to the Estates Act that raise the limit of a “small estate” to $150,000.

“Right now, the process to apply to manage an estate in Ontario is the same, whether the estate is worth $10,000 or $10,000,000. The process can be time-consuming and costly, deterring people from claiming smaller estates – and that isn’t right,” said a press release.

The new regulation, introduced in the Smarter and Stronger Justice Act, does not come into effect until April 1, 2021, but will make it easier to file a probate application for small estates and removes the requirement for a security bond in many small estate probate applications.

Among the changes to simplify the probate process for small estates are allowing for the completion and filing of a new simpler application form; removing requirements for certain supporting documents to be filed (for example, a commissioned affidavit of service); and more guidance for applicants on the process to file a probate application for a small estate.

Estate administration tax is still applicable to the portion of the small estate that is larger than $50,000, but these changes to procedure represent a positive step for grieving families who might otherwise leave a small estate unclaimed.

It’s worth noting that banks and other financial institutions often can’t take instructions from an estate trustee unless probate has been granted. By raising the limit for small estates, and simplifying the probate procedure, many estates will be settled sooner and with fewer burdens or costly hurdles for grieving families.

Thanks for reading

Ian Hull and Daniel Enright

29 Apr

Estate Information Returns: What’s That All About?

Kira Domratchev Estate & Trust, Executors and Trustees, Trustees Tags: , , , , , , 0 Comments

Were you recently appointed as Estate Trustee and needed to obtain a Certificate of Appointment of Estate Trustee (otherwise known as “probate”)? In that case, you need to know that an Estate Information Return must be filed with the Ministry of Finance within 90 days of the date of the appointment, setting out the assets in the Estate and their corresponding date of death values.

Typically when an Application for Certificate of Appointment is filed with the Court, a trustee may not have access to every asset of the Estate such that that the value of the Estate may not necessarily be accurate.

As a result, when an Estate Information Return is filed following the Certificate of Appointment being granted, all of the assets of the Estate must be listed. Depending on the values of the assets as confirmed by the trustee following the Certificate of Appointment being granted, a refund may be issued in the event that Estate Administration Tax was overpaid or additional tax may be payable in the event that the value of the assets as listed on the Application is lower than what was listed on the Estate Information Return.

The Estate Information Return may be audited by the Ministry of Finance for up to four years after it is filed. As such, it is important to retain all relevant records in the event of such an eventuality. Another important consideration is that the Ministry of Finance will not typically provide confirmation of receipt of an Estate Information Return so it is prudent to send it via means that would provide you with confirmation of delivery such as fax.

Finally, if a trustee finds out any additional information regarding the value of the assets of the Estate that has any bearing on the Estate Administration Tax payable, an amended Estate Information Return must be filed within 30 days of the new information being uncovered.

Thanks for reading!

Kira Domratchev

Find this post interesting? Please consider these other related posts:

File Your Estate Information Return On Time

The Estate Information Return and Multiple Wills

Hull on Estates #468 – Personal Property, Digital Assets and the Estate Information Return

09 Oct

Attempts to Minimize Inheritance Tax

Nick Esterbauer Estate & Trust, Estate Planning, In the News Tags: , , , , , , 0 Comments

Previous entries in our blog have covered inheritance taxes in the United States and other jurisdictions and President Trump’s proposed elimination of the tax altogether.  Recent news coverage has zeroed in on how the family of the American president has allegedly evaded over half a billion dollars in tax liabilities that should have been paid on the transfer of significant family wealth.

Certain exceptions apply, but inheritance tax (more frequently referred to as “death tax” by President Trump himself) of 40% typically applies to assets of American estates beyond an initial value of $11.18 million.  This means that estates up to this size are exempt from inheritance taxes, while the wealthy engage in complex planning strategies to minimize tax liabilities triggered by death (some of which mirror those used by Canadians in an effort to avoid payment of estate administration taxes on assets administered under a probated will).

Despite Trump’s previous statements that he has independently earned his fortune without reliance on prior family wealth, The New York Times reports that he and his siblings together received over $1 billion from their parents’ estates and that $550 million (55% under the old inheritance tax regime) ought to have been paid in taxes.  However, in 1999-2004, during which years the estates of Fred and Mary Trump were administered, a rate of closer to 5% was paid in taxes.  Whether the tax-minimizing methods used by the Trump family were legitimate or questionable remains unclear:

The line between legal tax avoidance and illegal tax evasion is often murky, and it is constantly being stretched by inventive tax lawyers. There is no shortage of clever tax avoidance tricks that have been blessed by either the courts or the I.R.S. itself. The richest Americans almost never pay anything close to full freight. But tax experts briefed on The Times’s findings said the Trumps appeared to have done more than exploit legal loopholes.

Sometimes, the line between legitimate tax-minimizing planning strategies and outright tax evasion can appear thin.  It is important to avoid improper strategies that put the assets of an estate and their intended distribution at risk, and which may ultimately serve only to complicate and delay the administration of the estate.

Thank you for reading.

Nick Esterbauer

26 Oct

Should Life Insurance Proceeds be Included in the Value of an Estate for Probate Purposes?

Ian Hull Beneficiary Designations, Estate Planning Tags: , , , , , , , 0 Comments

When a life insurance policy’s designated beneficiary is the estate of the policy-holder, the proceeds of the insurance policy will be paid into the deceased’s estate. Usually, the value of the life insurance proceeds are included in the value of the estate when applying for a Certificate of Appointment of Estate Trustee. But there may be a case for not including them.

The Ministry of Finance takes the position that the “total value of the estate is all of the assets owned by the deceased at the time of death, including…insurance, if proceeds pass through the estate, e.g., no named beneficiary other than ‘Estate’.” However, the Estate Administration Tax Act, 1998, S.O. 1998, c. 34 defines ‘value of the estate’ as “all the property that belonged to the deceased person at the time of his or her death”.

Therefore, some have suggested that there can be an argument made that, at the time of the deceased person’s death, they did not actually own the proceeds from the insurance policy. Rather, they owned the contract of insurance. The proceeds are only payable after death and therefore cannot be in the deceased person’s possession when they die. Whether this argument would succeed is uncertain, but it does raise an interesting question of a conflict between the clear wording of a statute and Ministry policy.

Considering that, as discussed in this Toronto Star article, Ontario has the highest estate tax in Canada, the issue of what is and is not to be included in someone’s estate for the purpose of determining the amount of estate administration tax is not insignificant. Currently, the rate of estate administration tax is $5 per $1,000 of the first $50,000 of an estate, and then increases to $15 for each $1,000 after that. Keeping an insurance policy outside of the estate could result in significant tax savings.

Of course, there are other ways to avoid including the value of insurance proceeds in your estate. This includes designating a beneficiary other than the estate. In that case the insurance proceeds would pass entirely outside of the estate and no estate administration tax is payable.

Thanks for reading.

Ian Hull

30 Sep

The High Cost of Probate

Suzana Popovic-Montag Estate & Trust, Estate Planning, Wills Tags: , , , , 0 Comments

Many third parties such as banking institutions and the Land Registry Office require probate as proof of authority to act as estate trustee. Unfortunately, the process of probate brings with it the widely unpopular Estate Administration Tax which is calculated on the value of the assets of the estate. As a result, estate planning methods that seek to remove assets from an estate and transfer them directly to a beneficiary are becoming increasingly popular. These include the transfers of title of real property into joint tenancies with rights of survivorship, adding joint account holders to bank accounts, designating beneficiaries in insurance policies, lifetime gifting and the use of multiple wills.

The challenge that some of these techniques brings is that when used in a way that does not ensure an equal distribution of assets among beneficiaries or when the intentions of the testator are later brought into question, they all too often become land mines associated with an increased likelihood of estate litigation.

The question becomes: what is probate and the resulting Estate Administration Tax really costing us? When avoiding probate at all costs begins to encourage risky behaviours that would not have otherwise been taken, we need to start to consider whether certain safeguards need to be implemented.

In looking to the rest of Canada, we can see in both Alberta and Quebec two alternative models. In Alberta, the probate process has created an upper limit or maximum fee that can be payable. This is currently set at $400.00 for estates of $250,000.00 or more. In this way, the incentive to attempt to distribute assets outside of the will has been largely removed.

In Quebec, they have gone even a step further. There is a flat fee for the probate of any estate, regardless of its value, which is currently set at $105.00. However, if the testator has obtained a notarial will, there is no fee at all as notarial wills are not subject to probate. The will is immediately valid upon the death of the testator and is in and of itself valid proof of the authority of the liquidator (i.e. estate trustee) to act.

Aside from the removal of incentives, there are other precautionary measures that can be taken. For instance, public legal education on the effects of lifetime transfers, joint accounts and joint tenancy could be beneficial. These estate planning tools can be effectively and safely used provided that the testator and any joint tenants or account holders have an accurate understanding of the consequences that can arise as a result of these types of transfers.

Furthermore, obtaining proper and independent legal advice beforehand is always recommended. The law with respect to joint assets is still evolving and can give rise to complex issues that can have significant ramifications for the testator, estate and the beneficiaries.

Thank you for reading.

Suzana Popovic-Montag

 

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