In Ontario, probate fees, the “estate administration tax” (EAT), are levied on a deceased taxpayer’s estate. This tax is paid on the value of a deceased person’s estate when their executor(s) apply for a certificate of appointment of estate trustee or “letters of probate”. If you have had the experience of being an executor, you can attest that without these letters of probate, you have no authority and the various financial institutions will not even to talk to you.
The tax amounts to $250 on the first $50,000 of assets and $15 per $1,000 thereafter. Two of the more common strategies to minimize probate fees are making gifts and transferring assets to joint tenancy. While these techniques may reduce or eliminate probate fees, they can create significant income tax and estate issues if not done properly.
Although executors spend hours compiling the list of assets for the application to get the certificate of appointment, the Ontario government in past has accepted the tax paid without question and often does not follow up or audit the list and valuation of the deceased’s assets.
Buried in the 2011 Provincial budget, which has now become law and received Royal Assent, beginning January 2013, the Ontario Ministry of Revenue estate auditors will now have four years from the date the EAT is payable to assess or reassess the tax.
As a result of the increase in verification powers, the valuation of assets disclosed in the application will be subject to far greater scrutiny. Executor(s) will be required to assist the Ontario Ministry of Revenue and answer questions regarding the valuation of the estate’s assets. Executors will have to be extremely diligent in obtaining and documenting how they came to the valuation of assets reported on the application.
The heightened audit requirements commencing in 2013 will likely result in increased liability for executors and be a catalyst for even more probate planning to ensure the value of the estate is minimized for the EAT. In addition, executors will have to be extremely cautious in distributing assets before the end of the four year period, as they could be held liable for any additional probate taxes owing.