Probate tax, also known as Estate Administration Tax, is payable at the rate of approximately 1.5% on the assets owned by a deceased person and which pass through their estate. The tax is paid at the time an Estate Trustee (Executor) named in a Will applies to Court for a Certificate of Appointment of Estate Trustee (formerly Letters Probate). This Certificate confirms the date of death and also the authority of the Estate Trustee to act in this capacity. The tax is also payable when a proposed Estate Trustee not named in a will applies for this Certificate which officially appoints them in this role.
Not all estate administration situations require this Certificate and it is most often third parties dealing with the Estate Trustee that require and therefore trigger the process of applying for the Certificate. Unfortunately, the estate may be made up of several assets, only one of which is administered by a third party administrator who requires the Certificate in order to allow the Estate Trustee to take possession of that asset. The probate tax would be paid on all of the assets passing through the estate and not just the one that triggered the need for the Certificate.
Thus, there has been much said in the media, conferences and in solicitor-client communications about how best to minimize probate tax. Many today have adopted the process of creating multiple wills for this purpose. The reason stems from the case Granovsky Estate v. Ontario (1998), 156 D.L.R. (4th), 21 E.T.R. (2d) 25 (Ont. Ct. (Gen. Div.)) which held that there is no legislative prohibition against applying for a grant of probate for a primary will drafted to include only assets that require probate, and no requirement for estate trustees to apply for probate and pay probate tax for a secondary will drafted to pass assets that do not require probate in order to transfer them.
Assets that can usually be transferred without payment of probate tax by a separate will include:
- those that do not have registered title;
- shares in private corporations under some circumstances and related shareholders’ loans and receivables;
- household goods and personal effects except those held in a safety deposit box which may require probate to access the box;
- real property under the registry system; and
- unsecured debt
This case decision, therefore, allows a testator to eventually pay less probate tax since they would do so only on the assets requiring probate. In other words, the non-probate assets are not “tainted” by those requiring probate because two different asset pools are created and drafted under each will.
This works, at least in theory, but there are some concerns that must be considered. The drafting can be very tricky and it is sometimes difficult to forecast with complete certainty which assets will require probate and which will not. Assets should be properly identified in the secondary will (or wills) and thought should be given to which will will bear debts and taxes and this intention should be clearly stated in each will. There may also arise negative results and dynamics associated with having different sets of beneficiaries and Estate Trustees (with compensation issues) under each will. As always, this planning should be reviewed regularly. Contact me if you need multiple wills or to review your planning.
****
Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.
