Recent changes to the Estate Administration Tax Act, 1998 (the “Act”) have increased the already heavy burden of responsibility on Estate Trustees (Executors). As you may be aware, the Act establishes the amount of Estate Administration Tax (Probate Fees) which must be paid when the Executor applies for a Certificate of Appointment (Probate). Probate Fees are based on the value of the assets owned by the deceased on death. They are calculated at the rate of .5% of the value of the assets up to $50,000 and 1.5% of the value of the assets over $50,000 (with no limit on the value of the assets).
As of January 1, 2015, Executors in Ontario are required to file an “Estate Information Return” with the Ministry of Finance within 90 days of the issuance Probate. In the Return, the Executor must report all of the assets owned by the deceased and the values of those assets. Generally, the purpose of the filing of the Return is to establish that the proper amount of Probate Fees has been paid.
It has accordingly become increasingly important for Executors to ensure that the values which they attribute to the various assets owned by the deceased are reasonable and can be supported (if necessary) with valuations or appraisals.
Executors must be extremely careful when there are assets owned jointly by the deceased and another individual, particularly a child. It is not uncommon for elderly parents to “add” a child’s name to a bank account or investment. The intention of the parent in doing so must be carefully scrutinized by the Executor along with any documentation which was signed at the time of establishing the joint account. (As an aside, we would strongly recommend that you seek legal advice prior to making changes to the ownership of bank accounts, investments, properties or other assets to include children. There may be very compelling reasons for not doing so.)
The Ministry of Finance can audit the estate and reassess the amount of Probate Fees paid if it believes that the Executor has undervalued the assets. Accordingly, Executors are required to maintain thorough records to establish the value of the assets and prove that the proper amount of Probate Fees has been paid.
If an Executor fails to file the Return on time or makes any false or misleading statements, there are fines, penalties and in extreme circumstances, possible imprisonment.
We would be pleased to review this new legislation with you to clarify the responsibilities of Executors and to assist with the filing of the Returns.
Christine Manners is a partner with HGR Graham Partners LLP. Christine’s practice is focussed on Wills, Estate Planning, Estate Administration and Real Estate.