Homeowners Should Seek Legal Advice When Estate Planning

Why there is no such thing as a simple will.

Buried in last month’s provincial budget is a measure designed to reduce the cost of obtaining probate — “to provide tax relief for families when they need it most, as the death of a loved one is a difficult time.”

Effective Jan. 1, 2020, the Estate Administration Tax will be eliminated for estates with assets of $50,000 or less. For larger taxable estates, the tax will be reduced by $250.

The estate tax is collected on filing an application for a certificate of appointment of estate trustee, commonly known as probate. Since June 1992, when the Ontario government tripled its probate fees, the amount payable is $5 per $1,000 on the first $50,000 of estate assets, and $15 per $1,000 on the balance, with no maximum.

With real estate prices soaring in recent years, the probate tax payable on an estate with an average $1 million home, without a mortgage, is almost $15,000. Realistically, a $250 reduction is just a drop in the bucket.

A more serious problem the government failed to address is the chronic understaffing in the Estates Court branch of the Superior Court of Justice in Toronto. The lack of personnel has resulted in delays of up to eight months to obtain a straightforward, over-the-counter court order. Court offices in less busy jurisdictions can turn around a probate application in days.

When the family home is the principal asset of an estate, and it can’t be sold without a court appointment of the estate trustee, a Toronto house or condo often sits empty for months waiting for court approval of the probate application.

There are a number of ways to avoid paying most or all of the estate administration tax. It can be avoided, for example, by gifting assets like real estate or bank accounts to adult children while the owner is still alive.

Another option is to register assets, including real estate, in joint names with the beneficiaries so that the survivors can become the owners automatically on the death of the parent. This can have serious adverse tax consequences, however, if the asset is subject to a taxable capital gain on any transfer.

Gifting assets to children also means the homeowner gives up control of the home’s value that may later be needed for age-related nursing or housing.

As well, the value of the property gifted to the children could be exposed to a claim by an unhappy spouse. 

Houses that were registered under the old Land Registry system when they were initially acquired can be transferred without probate tax or applying for probate, even though title has now been converted to the computerized Land Titles system.

Increasingly common is the preparation of multiple wills: one for assets that do not require probate, like shares in a private business corporation. The second is the general will and is used for all the estate assets which require probate in order to be liquidated.

Estate planning and the preparation of individual or multiple wills require sophisticated legal advice to deal with the tax consequences, family law issues and all the possible “what-ifs.”

I often tell clients there is no such thing as a simple will.

Top image credit: 4zevar

Bob Aaron is Toronto real estate lawyer. His column appears on this blog, Move Smartly, and in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website aaron.ca. 

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