Tag: Estate Information Return
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.
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Last year, a regulation to the Estate Administration Tax Act, 1998, S.O. 1998, c. 34, Sched. (the “EATA”) came into effect requiring estate trustees to file an Estate Information Return (“EI Return”) with the Ministry of Finance within 90 days after issuance of a Certificate of Appointment of Estate Trustee. The EI Return must include information with respect to the “value of the estate”. Under the EATA, this term is defined as “the value which is required to be disclosed under section 32 of the Estates Act (or a predecessor thereof) of all the property that belonged to the deceased person at the time of his or her death less the actual value of any encumbrance on real property that is included in the property of the deceased person.”
Section 32 of the Estates Act, R.S.O. 1990, c. E.21, among other things, provides in subsection (3) that “Where the application or grant is limited to part only of the property of the deceased, it is sufficient to set forth in the statement of value only the property and value thereof intended to be affected by such application or grant.” This means that any assets that are governed by a Will that is not being submitted for probate are not required to be disclosed on the EI Return. Accordingly, if an individual has multiple wills, any assets governed by their Secondary Will do not have to be disclosed on the EI Return.
Multiple wills are used in estate planning to deal with a testator’s assets and belongings that do not require a Certificate of Appointment of Estate Trustee to transfer and distribute, therefore avoiding the need to pay Estate Administration Tax on the value of those assets and belongings. With the introduction of the EI Return, there may be increasing motivation for testators to use multiple wills in their estate planning. In providing their valuation of the estate being administered, estate trustees will now be required to substantiate the valuation used. This may require formal valuations, such as appraisals, which may result in significant costs to the estate.
For example, if a testator has a number of pieces of art and jewelry, which can be transferred without a Certificate of Appointment, the estate trustee would be required to have appraisals performed on each piece in order to substantiate their valuation for the EI Return. In this situation, it may be more efficient, both in terms of cost and in terms of the time required to complete the formal valuations, to distribute those assets through a Secondary Will. Testators and solicitors should consider whether the costs of determining the value for each and every item or asset may be higher than the expenses involved in preparing multiple wills. It may be that, with the EI Return now in effect, a lower threshold for the value of a testator’s assets may justify an estate plan that involves multiple wills.
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On February 27, 2015, I chaired a workshop titled, The Estate Administration Tax Act, 1998: New Reporting Requirements, which was provided as part of the LSUC’s Continuing Professional Development.
As part of this workshop, our speakers, among other things, canvassed the various issues and concerns raised in relation to the introduction of the new Regulation, which came into effect January 1, 2015.
One area of concern we discussed during the workshop was the treatment of mortgages on real property. Specifically, the situation in which a deceased dies with real property in Ontario that is subject to a mortgage and that mortgage is secured by way of life insurance with the proceeds of the life insurance policy made payable to the mortgagee.
At that time of the workshop there was some uncertainty as to what information would need to be included in the value of the estate for the purposes of estate administration tax and the Estate Information Return in such circumstances.
Following the workshop, discussions were held at the Ministry of Finance and the Ministry has since clarified its position on this issue.
The Ministry’s position is that under these circumstances, since the insurance policy is payable to a designated beneficiary, the proceeds do not flow through the estate. They do not form part of the value of the estate for the purposes of estate administration tax. They do not need to be reported on the Estate Information Return. Since the real property is in Ontario, it should be included as an asset of the estate. The mortgage, since it is registered against real property in Ontario, can be deducted from the value of the estate for the purposes of estate administration tax.
So, for example, let’s say Jim dies the registered owner of real property in Ontario valued at $500,000. Prior to his death, Jim registered a mortgage against this property in favour of CIBC. Jim secures the mortgage by way of life insurance with the premiums paid by Jim and the proceeds of the life insurance policy made payable to CIBC.
Upon Jim’s death, the amount owing in respect of the mortgage registered in favour of CIBC, as at Jim’s date of death, is deductible from the fair market value of the property and the life insurance proceeds, as payable to CIBC, would not be included as an estate asset.
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