ARTICLES
LEGAL ARTICLES & INFORMATION
At Cohen Barristers & Solicitors, we serve a diverse clientele in Toronto and the surrounding communities for legal services you can trust. To schedule a legal consultation at our firm, call us today.
All articles are copyright, are for your general knowledge, and are not intended to provide legal advice.
Test Your Knowledge
How would you respond to the following statements?
- If I could only afford one of these documents, I would choose:
- a will
- a power of attorney for property
- a power of attorney for personal care.
- I know what the Ontario Estate Administration Tax is all about.
- I am informed about changes recently implemented to the reporting requirements of the Ontario Estate Administration Tax, its enforcement, and how these changes will impact the administration of my estate.
- I know the difference between capital gains tax and the Estate Administration Tax Act and how my estate may or may not be impacted by these taxes.
- I have a will, but I have not reviewed my will in the last 10 years.
- Since I signed my will my children are now young adults; my children have married and now have children of their own; a beneficiary has passed; my executor or alternate executor has passed or is no longer capable or interested in administering my estate.
- Since I signed my powers of attorney, my one or more of my attorneys or alternate attorneys has passed or is no longer capable or interested in administering my assets and /or personal care.
- My will provides for one or more alternate executors. My powers of attorney provide for one or more alternate attorneys.
- I have or my spouse and I have assets excluding our principal residence in excess of $500,000.00 and I do not know the answers to numbers 3 and 4.
- I think it’s a good idea that one of my children be added to title to my principal residence as a joint tenant to avoid “probate fees” on my death / on the death of the survivor of myself and my spouse.
- I have a cottage which I (my spouse and I) want to pass on to our children in equal shares. I have not addressed this bequest in my will or my will has a very simple clause leaving the cottage to my children on my death / the death of both me and my spouse.
- I have a business which is incorporated or I am a shareholder of a private corporation. I have considered and addressed how my death will affect the ongoing operations of my business or how, if applicable, my death will impact the other shareholders. I have considered and addressed the impact on my business and my family should I suffer a significant disability.
- I know how a will may become invalid.
It is very important that you plan for the orderly disposition of your assets on death in a manner using recognized tax efficient strategies applicable to your financial resources, your comfort level and your personal situation
If you do not have a will and/or powers of attorney, please resolve to have these documents prepared.
If you have a will and powers of attorney, you can start reviewing your existing documents, keeping in mind statements 2 to 13.
If you have any inquiries or you have determined that your will(s) and powers of attorney need to be updated or you want a will and powers of attorney, please call 416-293-6000 or email. We will be pleased to assist you.
Multiple Wills
In the year 2000, the use of multiple wills for estate planning in the Province of Ontario was accepted by the Province of Ontario following a court case in 1998 which sanctioned this practice.
The use of a primary will for those assets which require a court order confirming the appointment of the executor(s) pursuant to a will and one or more secondary wills for those assets not requiring a court order for dealing with your assets can be an important means of significantly reducing the Estate Administration Tax payable.
A secondary will benefits those with shares in one or more private corporations. Unlike publically traded shares, which require formal approval (court order) of the appointment of the estate trustee, private corporations are able to waive this requirement as the shareholder’s death is known by the deceased’s family or one or more other shareholders, who are able to rely on the funeral director’s statement of death and the will as formal evidence of the death as to who has authority to deal with the deceased’s shares. If there is no will or no secondary will, then the share value must be ascertained and Estate Administration Tax must be paid.
The Estate Administration Tax is calculated as follows:
- 5% on the first $50,000.00 of estate assets and
- 1.5% on all additional estate assets.
For the purpose of this discussion, assuming the value of shares owned by the deceased is $500,000.00 and the deceased had other assets on death exceeding $50,000.00, the Estate Administration Tax on $500,000.00 is currently $7,500.00. This amount is not payable if the shares of a private corporation are dealt with in a secondary will.
As well, personal assets such as automobile collections, art collections and other personal property can also be included in a secondary will.
There is a potential further benefit of a secondary will for those who are survived by a spouse. If the spouse does not have to sell these assets soon after death, a valuation for these assets does not have to be obtained until the first to occur of the sale of these assets or the death of the surviving spouse. The payment of capital gains tax under the Income Tax Act is not payable until the occurrence of one of these two events. As a result of not having to obtain the valuation(s), the estate of the spouse who originally died is spared the expense of the valuation(s) and the estate trustee of the spouse who originally died is spared uncertainty, resulting personal liability and further expense of the valuation(s) possibly being subsequently questioned and audited by Ontario’s Ministry of Revenue.
Any relief of an executor’s liability must now be considered when drafting a will as executor’s liability has been expanded pursuant to amendments to the Estate Administration Tax Act.
If you believe you are in a position to take advantage of multiple wills and do not have a secondary will, then Bryon C, Cohen of Cohen Barristers & Solicitors will be pleased to evaluate and assist with your estate planning.
You Need to Know This
Significant changes to the enforcement and collection of tax pursuant to the Ontario Estate Administration Act have now been implemented. These changes were deemed necessary as the “honour system” of reporting taxable estate assets for the purpose of payment of this tax was being abused. Although the Province of Ontario has always had the ability to audit the valuations submitted, enforcement was minimal. Other than stating the aggregate valuations for personal property, and net valuation of real estate owned in Ontario, individual asset descriptions and valuations were previously not required.
Enforcement provisions are now in effect as well as regulations, forms and guidelines as to the specifics and timing for reporting the deceased’s assets.
The Estate Administration Tax (formerly probate fee) is collectable on all of the assets of the deceased person for which a court order is required to approve the appointment of the estate trustee (executor) with or without a will. Certain assets, most commonly life insurance policies, RRSPs and RRIFs with named beneficiaries, various trusts, jointly held assets with notable exceptions, are not estate assets and accordingly are not subject to the payment of this tax. The foregoing are the most commonly used methods of estate planning tax minimization techniques.
However, a significant number of persons do not fully appreciate and understand the utilization of these assets in estate planning, including capital gains tax and Estate Administration Tax implications as to their estates and their beneficiaries, or as to assets which may have to be expended in their lifetimes to maintain their life style.
The changes to the Estate Administration Tax act will also have a serious impact as to liability exposure of estate trustees.
If you do not have a will, if your will is at least several years old, or if your private company investments have significant value, you are invited to call 416-293-6000 for a short consultation at no charge to assess your needs.
The Joint Tenants Trap
Joint ownership of real estate and bank accounts has its benefits.
The joint owner who survives automatically becomes the sole owner of that asset.
Joint ownership, which is the most common means for spouses to record ownership of their principal residence, is recognized as a basic tool of estate planning. If there is a surviving joint tenant then that asset is not part of the deceased’s estate for determining the valuation for calculating the Ontario Estate Administration Tax (commonly referred to in error as “probate fee”). However for real estate, the survivor is required to register a Survivorship Application on title and to pay a relatively small lawyer’s fee and registration disbursements.
Real Estate and Estate Planning lawyers all too often have to respond to clients or prospective clients who want to use joint tenancy for the purpose of avoiding the Estate Administration Tax without understanding the negative implications.
For example, one or both older parents decide that one or more of their children be added on title to the principal residence to save them this tax. Usually this transfer of ownership interest is gifted.
The negative consequences are as follows:
Control of this asset is reduced. As well a loss of net worth is incurred.
Any child who does not reside on the property, will be required to declare a capital gain for income tax purposes when the property is sold or child’s interest is transferred.
If the child has not previously owned real estate, then that child loses the benefit of first time buyers’ Ontario, and if applicable, Toronto Land Transfer Tax rebates, should that child then later want a home for his/her own, as well as the benefit of utilizing RRSP funds for the purchase.
Generally gifts are exempted from Land Transfer Tax. If there is a mortgage on the property, then at the time of registration the child must pay Land Transfer Tax equal to the ratio of the child’s ownership interest in the property to the outstanding balance of the mortgage as of the date of registration less eligible first time buyer's exemption, as a debt cannot be gifted.
If the property is not a principal residence, for example, a cottage, the gift to a person who is not a spouse will attract capital gains tax to the parent(s) to be declared and paid with the filing of the next income tax return.
If a child has a monetary judgment against that child, a writ of execution can attach to the property which could result in a forced sale of the property.
If the parent needs additional liquidity and want to re-finance or place a mortgage, the children on title and spouse of any child residing in the property must agree.
In the event of a disagreement among owners - for example, whether to sell, the sale price, family disputes - a co-owner generally can force a court ordered sale.
The presumption in law is that a transfer to an adult child holds that asset in trust for the person who made that transfer. Unless the recipient can prove otherwise, it can be anticipated that the Ontario Minister of Revenue would claim that the conveyance was made to avoid the Estate Administration Tax, particularly if there are surviving adult children who are not on title. An accounting of the distribution of the sale proceeds should be expected. Such a re-assessment could result in penalties to the executor. See “Executor’s Face Increased Personal Liability Exposure”.
Avoid the Joint Tenants Trap by giving thorough consideration to the legal and tax implications of utilizing this strategy.