Wills and Estates – Estate Administration Tax
Estates Administration Act
Probate Fees- New Regulations as of January 1st, 2015
On January 1st, 2015, the Provincial Government activated new regulations dealing with the collection of the estate administration tax, also known by its common name as “Probate Fees”. This is roughly the equivalent of the 1.5% tax that the Provincial Government levies on all estate assets that need to be “probated”.
For the first time, the Provincial Government appears to be getting serious about ensuring that it is receiving its fair share when an estate is passed from one generation to another. Amendments were also made to the Retail Sales Tax Act, in essence to make the filing of an Estate Administration Information Form mandatory and treating it as if it was the equivalent of a Retail Sales Tax Report. This was done to give the Provincial Government the ability to enforce the collection of the tax. It is the basis for determining the amount that the Provincial Government feels it is entitled to.
A lengthy and highly detailed form now needs to be completed by each estate trustee and it must be RECEIVED by the Minister of Revenue within 90 days of the granting of probate.
The assets subject to probate fees remains the same. The difference is the reporting and the obligation upon the executor to ensure that he/she has taken all reasonable steps to fulfill their obligations and accurately report the amount passing under the Will so that the Government can get its slice of the pie.
The information form now requires the executor to take all reasonable steps to document the value of the contents. Previously, it was not uncommon except in the most lavish of homes to assign no value whatsoever to either motor vehicles or household contents. This on a practical basis is no longer the case. In a recent lecture, organized by the Law Society of Upper Canada, Senior Auditors for the Ministry of Revenue indicated that they were going to take proportionality into account. In other words, unless something is an extremely high value asset the Ministry will accept a relatively modest value.
As this is a new regime, our advice will change as the process evolves. At this stage, the best advice appears to be the following:
Real Estate: The Home
- Unless it is an extremely expensive home, a reasonable valuation by a real estate agent is satisfactory. This valuation must be in writing.
- Usually these have very little resale value. It would be good practice for the executor to video tape the entire contents and save that video, should the auditors come calling. A reasonable, yet realistically modest value should be assigned to the contents. Remember it is what you could sell these contents for, not their sentimental value or replacement cost. However, one can no longer simply attribute zero to this value.
Personal Property and Jewelry
- The value of personal items should indeed be properly valued by an appropriate jeweler or appraiser. Remember again that this is not insurance value or replacement cost, but what the market value as of the date of death was for the item.
- One should take a look at Red Book value or the value that is available through the Ministry of Transportation. Clearly, these values are all within the reach of the Ministry.
- These are available although at some expense through an online service.
Risks to Executor
There are significant risks especially if there are asset with a significant value. While the Estate Administration Act does not have the ability to impose personal liability on the estate trustee in the fashion that exists under the Income Tax Act, an executor who does not take care to protect him or herself, can be subject to significant fines and even imprisonment.
Concluding an Estate
Except in the closest of families, we recommend a final release and indemnification agreement be signed by the beneficiaries. This should be done before the final distribution. Now even greater care is needed in the documents preparation. The beneficiaries should be required to indemnify the executor should any additional estate tax be found owing at a later date.
An estate trustee in administrating an estate with significant value after a Clearance Certificate is obtained from Canada Revenue Agency, can obtain a Comfort Letter from the Ministry. However, while this provision exists in the regulation, details have not materialized and no one actually knows what this will look like.
Joint Assets to Avoid Probate
The regulations bring up again the difficult area of dealing with assets that are held jointly solely to avoid probate fees. A classic example is transferring bank accounts or even the family home into the name of the testator (the person writing the Will) and a child on a joint account. This must be handled correctly, otherwise all of these assets will fall back into the estate and will have to be included in the determination of the amount of estate administrative tax that will have to be paid.
Especially for an asset as large as a home, a primary and secondary Will should be prepared.
The lawyers at Dale Streiman Law L.L.P. have decades of experience in these areas and assist you in not only preparing a Will, but also in estate planning which can minimize the estate tax that can easily amount to many thousands of dollars upon the death.