Tag: probate fee tax
With the April 30, 2012 deadline looming for individuals to file their personal tax returns, tax is on a lot of people’s minds right now. With tax already on the mind, I thought it might be a good opportunity to re-visit another kind of tax that one day we all have to face, Estate Administration Tax ("EAT"), more commonly referred to as probate fees.
The first question that needs to be considered is when an applicant has to pay EAT? According to Rule 74.13(1) of the Rules of Civil Procedure, EAT must be paid at the time of the application for a certificate of appointment of estate trustee is made. Exceptions to this can be found in Rule 74.13(2) to (4), which for example, allow an applicant to file an affidavit as to the estimated value of the estate at the time of the application. EAT is then paid on this estimate. If the applicant relies on this exception though, an undertaking must be given by the applicant to file a sworn statement as to the actual value of the estate and to pay the difference within six months.
The second question that needs to be considered is what to include in valuing an estate for EAT purposes. Generally speaking, EAT is calculated on the fair market value of all property owned at the time of death. This is determined by referencing s 1 of the Estate Administrations Tax Act, 1998 (the "Act") with s 32 of the Estates Act, 1990. Assets generally excluded include: insurance payable to a designated beneficiary, real estate held outside of Ontario and property passing on survivorship. Further, s 1 excludes the value of any encumbrance on real property.
The third question that needs to be considered is how an applicant calculates EAT? In order to answer this, reference must be made to the Act. According to s 2 of the Act, if the value of the estate does not exceed $1,000.00, no EAT is paid. The Act then offers how to calculate EAT for any certificate sought after June 7, 1992, in s 6. The method offered is not the simplest to understand and thought instead I would pass on a simple and straightforward method that was taught to me recently by one of my colleagues. Here we go: an applicant is required to pay $250.00 on the first $50,000.00 of the estate and 1.5% is paid on the balance of the Estate. For example, if an estate is valued at $150,000.00, one would pay $250.00 (being the first $50,000.00 of the estate) plus $1,500.00 (being 1.5% of the remaining $100,000.00 of the estate), totalling $1,750.00 of EAT.
Ian Hull – Click here for more information on Ian Hull.
As a segue from yesterday’s blog (which considered the issue of beneficiary designations of life insurance policies), today’s blog considers issues arising from the characterization of life insurance proceeds as trust assets in the context of an overall estate plan. Life Insurance Trusts can be created for specific purposes where the owner of the policy has clearly defined testamentary intentions respecting the use of the funds.
In his recent presentation at the Six-Minute Estates Lawyer, Robin Goodman noted a recent Saskatchewan case, Re Carlisle Estate, in which the Court considered whether a declaration in a Will creating a life insurance trust had the effect of excluding the proceeds from probate under Saskatchewan legislation. In that case the Court determined that, regardless of a clearly stated intention to the contrary, the appointment of the executor of the estate as the trustee of the insurance trust (and, more importantly, as the designated beneficiary of the insurance proceeds) meant that “no exemption from probate fees can be claimed.” However, in a gloss on this case, the decision in Sun Life Assurance Co. of Canada v. Taylor (also a Saskatchewan case) clarified that, where the insurance proceeds did not vest in the executor as beneficiary (albeit as trustee for others) but, instead, were simply held by the executor in trust for the designated beneficiaries, the insurance proceeds were not to be considered as estate assets.
As Goodman notes in his paper, it is not clear how these decisions will impact the law in Ontario. In any event, the decisions serve to give any estate planner pause to consider how best to structure an insurance trust whether inside or outside of a Will.
David M. Smith
Listen to The Core Issues Concerning Estate Taxes