Basic Estate Planning and Estate Administration Taxes
In order to honour the wishes in a will and commence administration of an estate, the will must be probated or duly proven in court and a certificate of appointment of estate trustee with a will must be granted. During this probate process, Estate Administration Taxes must be paid.
The Estate Administration Taxes are generally calculated on the fair market value of all property owned where the first $50,000 is taxed at 0.5% and the excess at 1.5%. It is one of the highest estate administration tax rates in North America.
The following are precluded from the calculation and are tax-free:
- joint property passing by survivorship;
- Insurance policies designating a beneficiary;
- real estate outside Ontario; and
- mortgages registered against title to real property.
If holding assets jointly for the purpose of avoiding estate administration taxes, please note that:
- you lose some control of the asset when you hold it jointly rather than in your own name;
- there is a risk of misappropriation of funds by the joint owner;
- there could be a relationship breakdown between owners;
- the spouse of a joint owner may argue entitlement to the joint account during divorce proceedings;
- the trustee in a bankruptcy may argue entitlement to a bankrupt joint owners account during a bankruptcy proceedings;
- there may be a loss of principal residence designation for income tax purposes; and
- where a bank account is held jointly between a parent and adult child, there is the presumption that the funds are held as a resulting trust for the parent's estate unless there is evidence of an intention to gift the funds to the adult child (Pekore v. Pekore).
Please note that when naming a beneficiary to one's life insurance, RRSP or RRIFs and in some cases for investments, it is generally a good idea to do so between spouses but not always with children. There is no obligation to distribute the money to pay for funeral expenses or among all siblings.
If a bank account is solely-owned by the decease, the bank will freeze the account. However, the bank will allow certain expenses of the estate such as the funeral bills and legal fees to be paid out of the deceased's bank account.
Landmark Law Professional Corporation may assist in Wills and Estates planning matters.
Disclaimer: This article does not contain legal advice and only provides general information. It is not intended to replace advice from a qualified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter referenced in this article before making decisions. Use of this article does not establish a lawyer-client relationship.