Plan­ning to Re­duce Es­tate Ad­min­is­tra­tion Tax in On­tario

Midtown Post - - Ask The Expert -

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.

Elise Pul­ver

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