News

Avoiding probate just got a little harder. But don’t panic.

Ottawa lawyer Timothy Sullivan on probate

by Timothy Sullivan, Lawyer

What is probate?

Canadians are in the fortunate position that there are no succession duties or death taxes. However, some institutions or agencies require authentication of the last Will. This process is traditionally called “probate” so a “fee” based on the value of the Estate is payable. The probate fee is in fact a tax since it is based on the value of the Estate being probated.

The “probate fee” is what we commonly call the tax authorized under the Ontario Estate Administration Tax Act and is formally called the Estate Administration Tax.

How is probate calculated?

How the probate fee is calculated:

$5 per thousand for the first $50,000 of the Estate;
plus
$15 per $1,000 thereafter.

So an Estate worth $240,000 would be calculated as follows:

$50,000 / $1,000 = $50
$5 x $50 = $250

plus

$240,000 – $50,000 = $190,000
$190,000 / $1,000 = $190
$190 x $15 = $2,850

$2,850 + $250 = $3,100

An Estate worth $2,200,000 would be calculated as follows:

$50,000 / $1,000 = $50
$5 x $50 = $250

plus

$2,200,000 – $50,000 = $2,150,000
$2,150,000 / $1,000 = $2,150
$2,150 x $15 = $32,250

$32,250 + $250 = $32,500

The trouble with probate

The trouble with the probate process is that any asset requiring probate will bring the entire Estate (but not real property outside Ontario) into the process even if the other assets do not require the Court’s authentication of the Will. Real estate, a large bank account or publicly traded shares require that a Will be probated so the entire Estate, including privately held corporations, personal effects and valuable property like art, which do not typically require probate, will be added to the value of the Estate to determine the probate fee.

An estate planning technique to minimize the tax payable on probate is to establish two Estates through two Wills signed contemporaneously. A “Primary Will” and a “Secondary Will” separate those assets requiring probate to be included in the Primary Will and the assets which don’t require probate to be included in the Secondary Will. This device is legal and a common planning technique for business owners who have valuable business assets like a privately-held corporation, but its use has expanded over the years.

Recent Court decision: Re Milne Estate

Recently, in a case called Re Milne Estate, the Court found that the wording of the Secondary Will allowed too much discretion to the executor to divvy-up what assets were to be included in the Primary and Secondary Estates. The Court decision has been appealed to the Ontario Court of Appeal but the appeal has not yet been heard (as of the writing of this article).

The Re Milne Estate case has thrown the Estate Bar into mild confusion. Lawyers are being warned to keep an eye on the case and to warn their clients that they may need to redraft their Primary and Secondary Wills. It is too soon at this moment to know what the Court of Appeal will say and panic is never advisable.

At SullivanLaw, we encourage clients to take a look at their Wills when they take on new responsibilities and to review them every five years or so to see that their intentions continue to be reflected in the Wills we have drafted for them. While the development in the case law is no cause for panic, we recommend clients consider their intentions and needs. It may be an opportunity to consider what they have planned. Clients may wish to segregate the assets which require probate from the assets which don’t if the probate fee is worth avoiding.