Probate is the process by which a Court confirms the validity of a will or appoints an Estate Trustee to administer an estate where an individual died without leaving a will. It is an old term no longer accurately used in Ontario (though you will likely still hear it from time to time) but still used in other jurisdictions in the world. The process ultimately results in the applicant being granted a Certificate of Appointment of Estate Trustee With or Without A Will (Certificate), which is the modern term. When applying for such a Certificate, Estate Administration Tax (EAT) is payable and calculated based upon the value of the assets passing through the estate in Ontario.
In Ontario, this tax is currently about 1.5% of the value of the estate assets and is payable at the time the application is submitted. Furthermore, the Application documents are often prepared and filed with the assistance of a lawyer, thereby attracting legal costs. As obtaining a Certificate is costly, and as a general rule, an estate trustee is legally obligated to minimize estate expenses, the estate trustee may wish to consider whether an application to the court should be made at all. When planning an estate, many people, also take steps to either minimize the EAT that may be payable to obtain the Certificate or minimize the likelihood that the Certificate will be required in the first place.
Since the Certificate is not necessary in all cases, how will one know whether it is needed upon death or can be avoided for planning purposes? Generally speaking, the requirement for a Certificate is dependent on the nature of the assets passing through the estate. It also depends on whether any third party holding a given asset at the time of death will require the Certificate before giving a party claiming to be the Estate Trustee possession of it. The grant of a Certificate to a purported Estate Trustee allows third parties to rely on the fact that the Court conducted certain investigations as part of the application process and determined in its estimation that either the presented will was the last valid will of the deceased or, where there was no will, that the applicant should be appointed as Estate Trustee Without A Will. Therefore, many third parties require the Certificate as part of their due diligence and to protect themself from liability.
Thus, an estate containing accounts with substantial funds on balance in the form of cash, RRSP, RRIF and/or TFSA with no named living beneficiaries, annuities, mutual funds, term deposits or real estate will most likely require the Certificate. Financial institutions whose discretion is at play in this regard include banks, trust companies, credit unions and private investment brokerages.
On the other hand, an estate that is only comprised of personal property such as appliances, clothing, computer, furniture and other household contents, will not require the Certificate as there wouldn’t be an institution holding those assets—they would simply be sitting in the deceased’s home.
Please note that it only takes one asset within an estate to require the Certificate, thereby attracting EAT payable on all assets passing through the estate. In other words, if the bank requires a Certificate for an account and the rest of the estate is comprised of household items, EAT will be payable on the date of death value of the bank balance as well as the value of the household items. This general principle does not apply in cases where there are multiple wills, one of which only distributes assets that do not require a Certificate.
Thus, one really has to look at the asset pool forming the estate and the requirements and policies of any third parties in order to determine whether the Certificate is necessary. Strangely enough, and somewhat frustrating, I have seen a case where one branch of a financial institution required the Certificate for a set of assets and another branch said they would not require it. It was the same assets, same deceased, same proposed estate trustees and the branches were in neighbouring cities. I suspect that an employee at one or both of the branches was in error. However, in this case and many others, I observed first hand that the requirement for a Certificate is often a matter of internal policy.
Here, it is worthwhile noting that although the Certificate provides some assurance to third parties that they can give an asset to the estate trustee, it also provides assurance to the estate trustee that their appointment is secure and that they do indeed have the legal authority to deal with the estate`s assets. In other words, although a third party may waive the requirement for a Certificate, the estate trustee may want to have one for their own assurance.
If you need assistance in determining whether a Certificate is needed for an estate or wish to take proactive steps towards planning to minimize estate administration tax, or even the need for a Certificate, please contact Andrea Kelly.
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.