Understanding Probate (EAT)

by Jeffery A. Keill, CFP, CIM, FMA, FCSI, Portfolio Manager and Senior Wealth Advisor Keill & Associates- Advisory Team

When it comes to discussing estates and creating an Estate Plan, the concept of probate always becomes a topic of interest. More appropriately, the discussion is generally around why it exists and how to avoid having it. This Brief Discussion Paper will attempt to provide some clarity to a complex part of the estate settlement process in Ontario, and the application of the Estate Administration Tax. Of course, as this is only a Brief Discussion Paper, it should not be construed as providing legal advice on the topic.

What is Probate?

In Ontario, a person or persons may want to tie up the affairs of a deceased person which includes gathering assets, paying off debts, filing tax returns, and distributing the remaining money, properties, and valuables of the deceased. This is the estate administrative process. In order to fulfill this role, one often (but not always) needs to be appointed by a legal document that has been provided by the deceased (the Will) or by the Ontario Court. If a person was to die while having a valid Will, they are known to have died Testate and the named Executor will seek to use the Will as a legal document to wind up the affairs of the deceased. This requires an application for the Certificate of Appointment of an Estate With A Will. If the deceased dies without having a valid Will, they are known to have died Intestate. At this point, since there is no valid Will, a loved one could make an application to the court to be appointed as the Administrator of the Estate. Both of these are situations require court activity to appoint an Estate administrator, and will require a fee to be paid. This fee is what we commonly refer to as Probate. More technically, it is called the Estate Administration Tax which ironically has the acronym of EAT.

Why do we need Probate with a valid Will?

The “probated” Will is a legal document that the court has recognized, and formally appoints someone as the Executor. This gives assurance that there are no other Wills and that the institution can with certainty act on the direction of the Executor and the terms of the Will. Without probate, an institution would be reluctant to accept instructions from someone for fear of mistake or liability. With that said, not every Will requires probate. We will only speak here of what is required when probate is needed with a valid Will.

What is the Probate Fee (Estate Administration Tax)? Along with the added administrative burden of making the Application to the court, there is a cost many want to avoid. The cost of the Estate Administration Tax (EAT) is 1.5% of certain assets of the Estate over $50,000. In other words, an estate under $50,000 will not have probate fees and only the value of the estate over $50,000 can be subjected to EAT. It is important to note that not all assets held by the deceased prior to death are considered as part of the Estate for the calculation of the Estate Administration Tax. Further more, not all assets that are owned by the deceased before death will be captured in their estate after death. Assets that fall outside of the purview of the Estate therefore do not have EAT applied to them.

What Assets are Subject to Probate in Ontario? Assets that may trigger probate fees in Ontario include:

• Real estate (located in Ontario), including a principle residence.

• Bank Accounts (including foreign or out-of-province banks).

• Investments.

• Vehicles and vessels.

• Property of the deceased that was held in another person’s name.

Other property, wherever situated including: Goods, intangible property, business interests, and insurance (if proceeds are left to the estate).

As an aside, it is important to note that mortgages or secured loans against a property would be subtracted from the value of the asset for probate purposes. For example, if there was a mortgage of $200,000 on a property that was worth $ 500,000, the value of the property for the purposes of the probate calculation would be $300,000.

Assets not covered by the EAT

Many people believe that all assets are considered part of an estate, but that is not the case. Here are a few examples of assets that are not subject to probate fees:

• Real estate outside of Ontario

• Real estate within Ontario that is converted to land titles after purchase by the deceased owner and that has not had any “dealing” since

• Assets that were held jointly (with exceptions)

• CPP death benefit

• RPPs, RRSPs, RRIFs, and TFSAs with a beneficiary designation or beneficiary declaration RDSPs to which the deceased subscribed to but was not the beneficiary.

• Debts owing by the deceased, such as credit cards, car loans, or lines of credit that are unsecured

How to reduce Estate Administration Tax

Proper Estate Planning not only tries to lessen the impact of the EAT, but also reduces the administrative burden and associated legal fees. Since not all Estates require probate, and not all assets will necessarily fall into an Estate, it is possible to arrange your affairs to reduce the size of the Estate and thereby reduce the costs. Here is a list of the ways to reduce the cost of probate-but for the most part there are three methods most people can take advantage of, in bold below:

• Joint tenancies

• Designating beneficiaries for certain investments and insurance

• Gifting before death

• Testamentary and Inter-Vivos Trusts

• Succession planning for business assets and corporate shares

• Multiple Wills

For most people, the first three are most common to reduce the size of an individual’s Estate in an attempt to avoid unnecessary probate fees taken from the points above.

Each of these items, when arranged correctly, cast the assets out of the person’s legal ownership immediately at death and therefore would not be considered part of the Estate (for EAT purposes). First, by electing to have someone own an asset with the ownership Joint With Right of Survivor, this will allow the asset to pass entirely to the joint owner on the death of the other. Common examples of this are bank accounts and some real estate holdings. Second, it is important to realize that many plans such as RRSPs, RRIFs, LIRAs, and TFSAs will allow for a Beneficiary Election. Again, upon death the value of these registered plans would pass immediately to the listed beneficiary and avoid EAT. Another very common place you will find Beneficiary Elections is on Life Insurance Policies. Where there is not a beneficiary, the death benefit is considered property of the Estate. Lastly, and probably one of the most controversial planning methods, is to gift the property before death. If you don’t own it there is no asset to deal with. The risk of this activity, of course, is that we are not always certain.

When death will ultimately happen and therefore people can find themselves giving up assets too far in advance, leaving themselves in peculiar and even difficult situations.

Of course, each of these methods to reduce probate fees comes with their own downsides or shortcomings. Gifting money through a beneficiary election, or having it jointly owned, could cast the receiving individual into a situation that has negative effects. Also, holding assets in joint ownership can lead to other legal and financial consequences as both individuals financial affairs now include this particular joint asset. Marriage breakdown, financial hardship, or other issues could arise.

In Conclusion

The intention of Estate Planning is to develop a plan to create an efficient transition of wealth and the settlement of one’s affairs, and in doing so a desire to reduce administrative burden and costs. Although this is true, and there are methods and strategies to help reduce the costs of the Estate Administrative Tax, there are times and situations when allowing the Assets to fall into the Estate are desirable.

Estate Planning for the most part is a simple process that unfortunately requires some knowledge of the rights and responsibilities under various laws in Ontario and Canada. All planning and strategies should consider the implication and the procedures of Succession Law, Tax Law, and Family Law, to name a few. The best intentions can be set aside and lead to undesirable outcomes. It is important, in our opinion, that individuals should seek professional guidance in this area to ensure their wishes are fulfilled and a strategy is properly arranged.

Disclaimer and Notice to Reader: This Discussion Paper should not be construed as legal or tax advice but rather only as a general statement and explanation of the topic matter. Professional tax and legal advice should be obtained for the readers own personal situation. For more information on this topic or how it applies to your family, please contact our Wealth Advisory team.

Last Edit Feb 11, 2025