Planning to Reduce Estate Administration Tax in Ontario
When a person resident in Ontario dies and is the sole owner of property (like funds in a bank account, investments with a broker or real estate), a “probated” Will is generally required before the deceased’s property can be transferred.
The process of “probating” a Will involves applying to the court for a Certificate of Appointment of Estate Trustee with a Will. The application must be accompanied by an affidavit attesting to the fair market value of all property owned by the deceased at the time of death, together with payment of estate administration tax (also referred to as “EAT” and formerly referred to as “probate fees”) based on the value of the property. Generally speaking, EAT is 1.5% of the value of the assets in excess of $50,000.
There are a number of ways to minimize or eliminate EAT. Many people believe that putting assets into joint ownership is an effective way to eliminate EAT. Joint ownership with a right of survivorship allows the assets being held jointly to pass directly to the survivor on the death of the first joint holder. In Ontario, assets held in joint names by spouses have the right of survivorship. However, the Supreme Court of Canada has declared that if assets are put into the joint names of a parent and an adult child, without any other evidence to contradict this, it will be presumed that it is not a true joint tenancy with right of survivorship, and the assets belong to the person who put them into joint names. These assets would form part of the deceased person’s estate and EAT will be payable on the value. If the intention is to create a true joint tenancy between two persons, such as a parent and child, documentation proving this intention can be executed. However, there may be negative tax consequences when transferring any capital asset. For these reasons, it is recommended that legal and tax advice be sought before putting assets into joint names for estate planning purposes.