There is a common misconception that probate is only necessary if the deceased died without a Will. This is not true.
Probate is the process whereby an individual’s appointment as an Estate Trustee (the new name for an executor or administrator) is confirmed by the Court. The Estate Trustee is the person responsible for administering the estate of a
A “Grant of Probate” is now known as a “Certificate of Estate Trustee”, although it is still commonly referred to as “probate”. Where there is a Will, the Court will issue a “Certificate of Estate Trustee with a Will” which also confirms the validity of the Will as the Last Will and Testament of the deceased. Where there is no Will, the deceased is said to have died “intestate”, and the Court will issue a “Certificate of Estate Trustee without a Will”.
Probate is not always required in order to deal with the administration of an estate. It will depend upon the nature and value of the assets owned by the deceased. For example, assets such as jointly-owned property or bank accounts; real
estate outside of Ontario; RRSP/RRIFs and life insurance proceeds designated to a named-beneficiary; shares in a private corporation; personal property; vehicles and investments or bank accounts below a nominal amount (usually $10,000.00, although the amount varies with each financial institution) can be dealt with by an Estate Trustee without having to obtain probate.
Probate provides evidence to third parties (such as financial institutions) that the Estate Trustee has the authority to deal with the deceased person’s assets. If the deceased died intestate then probate will likely be required because without
a Will, the third party has no proof that the person dealing with the administration really has the authority to do so.
If probate is required then the Court charges a fee (no surprise there), commonly referred to as “probate fees” but the proper term is “estate administration tax” (EAT). The EAT is calculated on the entire value of the estate (subject to
certain exceptions) as at the date of death, and must be paid at the time the application for probate is made.
Even if probate is only necessary to deal with one asset of the estate then EAT must still be paid on the entire value of the estate. In Ontario, EAT is calculated using the following formula: $5 per $1,000 on the first $50,000 plus $15 per $1,000 on the value over $50,000. For example, EAT for an estate valued at $1,000,000 will amount to $14,500. Jointly-owned assets, real estate outside Ontario and assets passing by beneficiary designation (RRSP/RRIF/TFSA/Life Insurance) are deemed to pass outside of the estate and as such, are not included for the purpose of calculating EAT.
Probate fees are normally avoided where estates pass between spouses due to the fact that most, if not all, assets are held jointly. However, for individuals in the higher income tax bracket, joint ownership is not always the best estate planning method. Sometimes it makes more financial sense to forego EAT savings in favour of income tax savings. However, if EAT avoidance remains one of your primary estate planning concerns, then there are a number of estate planning tools available to reduce or even avoid EAT altogether.
It is important to remember that estate planning does not work on a one-size-fits-all basis. A detailed review by your lawyer of your personal and financial circumstances is necessary to identify your estate planning goals and the options available to achieve those goals.