New estate tax rules in Ontario

Recent revisions to the Estate Administration Tax Act (Ontario) entail new reporting, enforcement and penalty provisions, explains Susannah B. Roth of O’Sullivan Estate Lawyers.

Probate fees, currently approximately 1.5%, are not increasing at this time, but it’s expected that existing popular methods used to reduce exposure to probate fees by avoiding, or partly avoiding, the probate process will become even more popular and important once the new measures come into effect. The new legislative measures, which apply for probate applications after January 1, 2013, will decrease privacy and increase expense and delay for estates requiring probate.

New estate administration tax measures

The regulations are widely expected to impose substantial new reporting requirements, including the filing of a complete inventory of the estate assets, possibly including assets passing outside of the estate as required by many other Provinces.

Existing rules only require disclosure of the total values of personal property and real property in Ontario, but no further details are part of the public record. The revised Act, for the first time, gives audit and verification powers to the Minister of Finance for probate fees, and makes it an offence to fail to provide the information required under the Act, or to give false or misleading information.

The penalty for these offences is a minimum fine of $1,000, up to a maximum fine of twice the tax payable by the estate, or up to two years in prison, or both. The penalty provisions will apply not only to executors who apply for probate, but to anyone who assists in making a statement under the Act, encompassing legal, tax and financial/investment advisors who advise the executor in this regard, and potentially even those who only provide information to the executor which is used for this purpose.

The defence available under the Act requires appropriate due diligence to be undertaken. Causing considerable concern are the new audit and reassessment powers, because the Act provides no “clearance certificate” procedure to provide protection that all taxes have been paid, which may expose executors and professional advisors to potential liability for many years.

What can be done to avoid the need for probate?

Because estate administration tax is imposed upon the value of an estate when a probate application is filed, the need for probate and exposure to probate fees can be minimized by using any or a combination of several popular planning methods, such as:

• Setting up an inter-vivos trust into which assets are transferred during a person’s lifetime and which pass outside of the estate at death including for those 65 and over, an alter-ego or joint partner trust.
• Executing multiple wills, which removes certain assets from being subject to probate fees.
• Holding assets jointly with right of survivorship with the intended beneficiary, so the assets pass automatically to beneficiaries and not through a person’s estate
• Designating beneficiaries of RSPs, RIFs, TFSAs, and insurance policies so the assets pass directly to beneficiaries and not through a person’s estate
• Gifting assets to intended beneficiaries during a person’s lifetime, which removes the assets from the person’s estate.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.