Valuing an estate for probate used to be relatively simple in Ontario: executors entered the total value of the estate on the probate application, signed an accompanying affidavit stating the valuation was correct, and that was usually that.

Not any more. As of January 1, Ontario executors (known as estate trustees) must file an Estate Information Return detailing the valuation of specific assets in an estate.

Plugging the holes

Wilmot George, vice-president of tax, retirement and estate planning at CI Investments, explains the new rules were enacted because many in the estate planning industry suspected some executors were understating their estates’ values—in some cases, significantly. “The government believed that they could tighten the screws a little bit and put themselves in a better position to audit an estate if the need arose,” says George.

Under the new rules, executors will have 90 days to file a detailed Estate Information Return accompanied by documentation supporting the value of estate assets; officials will retain the right to audit the valuation within four years of filing. As George points out, these changes should deter intentional underestimation of estate value in order to minimize probate taxes.

While George says the additional paperwork isn’t exceptionally technical or complicated, the regulations do make an executor’s job more complex. When listing an estate asset, executors must include a general description, detail its location and its value on the date of death, provide the percentage of ownership and list identifying characteristics, such as account numbers and number of units held. George suggests executors may want to seek a professional assessment for hard-to-value assets, such as real estate or personal effects. With other assets, such as investment accounts, they may not need one. But, he says, “We’ll have to give it a little more time to see how strict the government is going to be about valuation as well.”

George also warns, “It’s important for executors to know they’ve got an additional responsibility here. And if they fail to honour this responsibility, they can find themselves subject to fines of up to two times the tax payable or, potentially, imprisonment.” The changes may give testators cause for concern as well, as they “might make [the] testator think a little bit more about options for assisting their preferred choice.”

One option may be to name a professional trustee as co-executor. “If there’s a public trustee who can step in as co-executor, then I know that [a client’s] wife—who doesn’t have any expertise in this area, [who’s] never filed a tax return in her life—can lean on that co-trustee [to] carry out the administrative tasks of the job,” says George.

Craig Ross, partner and department head of wills, estates and trusts at Pallett Valo LLP in Mississauga, Ont., wasn’t surprised by the new probate regulations. “There was a general feeling that people weren’t taking [valuations] too seriously—or at least when assets weren’t too serious, they weren’t being too serious.” For instance, Ross says, executors may have forgotten about the ATV the deceased kept at her cottage. Ross also says the Ontario government saw this as an easy way to raise revenue that wouldn’t attract headlines.

While the rules may have changed, Ross says the responsibilities of executors haven’t. The new regulations “have added a legal cost to the process,” he says. “But [aren’t] they just making us do what we should have been doing anyways?”

Ross adds the new regulations will encourage testators to do even more planning. “For all their efforts, what Ontario might be doing is actually moving more people out of the probate process,” and instead moving assets into alter-ego trusts or joint ownership, or using named beneficiaries and dual wills. As he explains, there’s always been a financial reason (avoiding probate fees) for moving assets out of the estate before death. The additional paperwork strengthen those arguments.

“Now you’re avoiding the process, and the liability, itself.”

What’s out. What’s in

Which asset valuations need to be included on the Estate Information Return, and which don’t? Here’s a list:

Asset valuations that DO NOT need to be included:

  • real estate holdings outside the province of Ontario
  • assets held in joint ownership WITH a right of survivorship
  • registered assets (RRSPs, RRIFs, TFSAs) with a named beneficiary
  • insurance policies with a named beneficiary
  • CPP death benefits

Asset valuations that DO need to be included:

  • Ontario real estate (less encumbrances)
  • bank accounts
  • non-registered investments (e.g., stocks, bonds, trust units, options)
  • registered accounts (RRSPs, RRIFs, TFSAs) without a named beneficiary
  • insurance policies without a named beneficiary or made payable to “estate”
  • vehicles (cars, trucks, boats, ATVs, motorcycles, etc.)
  • all property in which the deceased had beneficial interest, even if legal title was held by someone else
  • jointly owned assets without a right of survivorship
  • personal goods and intangible property
  • business interests administered by the will, subject to probate

James Dolan is a Vancouver-based financial writer.