How to avoid or reduce probate fees in Ontario

What is Estate Administration Tax in Ontario?

Estate Administration Tax, commonly known as probate fees, is a mandatory tax imposed by the Ontario provincial government. It is placed on the estate of a deceased individual and is calculated based on the fair market value of the deceased’s estate, including all assets, property and investments on the date of death. It’s important to note that Estate Administration Tax is only triggered and payable when the estate goes through the probate process, which is a legal procedure that happens in two circumstances.

Firstly, it verifies and validates the last will and testament of a deceased individual in Ontario, ensuring authenticity of the will, and appointing an executor to manage the distribution of assets.

Secondly, when an Ontario resident passes away without a will, probate is necessary to establish a legal executor for asset distribution. And it ensures that the process follows legal guidelines while safeguarding the interests of the beneficiaries.

Calculating probate fees in Ontario

The calculation of Estate Administration Tax in Ontario is relatively straightforward, and can be found on Ontario.ca, if you are looking to play around with the numbers yourself. Like marginal income tax brackets, the tax rate is determined by a tiered system that corresponds to the total value of the estate on the date of death. Here’s a breakdown of the current rates:

Estates valued under $50,000

If the estate’s total value is less than $50,000, no Estate Administration Tax is payable.

Estates valued over $50,000

Estates valued above $50,000 are subject to a tax rate of $15 per $1,000 or part thereof.

For example, if an estate is valued at $200,000, the calculation would be as follows:
The first $50,000: = $0
The remaining $150,000: ($200,000-$50,000=$150,000) x $15 per $1,000 = $2,250

So, the total estate administration tax for an estate valued at $200,000 would be $2,250.

Ways to reduce or avoid probate fees

Reducing or avoiding probate can be a strategic move you make in your estate planning, especially since probate fees in Ontario are some of the highest in Canada, while Alberta has the lowest fees in the country. By employing various estate planning techniques, you can streamline the transfer of assets to your loved ones, potentially saving them time and the costs associated with probate. After all, a common goal during estate planning is ensuring that your assets are distributed efficiently while preserving your family’s financial resources.

Let’s review a few techniques and tips that can help families reduce or eliminate probate fees on estates.

1. Joint ownership with right of survivorship

One of the simplest ways to bypass probate in Ontario is by holding assets jointly with the right of survivorship. That’s when one owner passes away, and the surviving owner automatically becomes the sole owner of the asset. This is commonly used for real estate and bank accounts. However, it’s crucial to consult a legal professional to ensure proper documentation and compliance with the law to avoid unintended consequences such as the presumption of a resulting trust on an asset jointly held with an adult child.

2. Naming beneficiaries on registered accounts

Certain registered accounts—such as registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs) and tax-free savings accounts (TFSAs)—allow for you to designate beneficiaries, such as a spouse or children. When you name a beneficiary, the assets in these accounts are transferred directly to the designated individual upon your passing, thus avoiding probate entirely. In Ontario, it’s essential to keep beneficiary designations up to date to ensure your assets are distributed according to your wishes.

3. Establishing living trusts

Intervivos Trusts, also known as living trusts, are powerful tools for avoiding probate in Ontario. By transferring assets into a trust during your lifetime, you maintain control over them while designating a trustee to manage the assets after your death. Since the assets in a trust do not pass through the probate process, they can be distributed to beneficiaries more efficiently—and without a probate cost.  Keep in mind, Intervivos Trusts still do have to complete annual tax returns and you must declare any income earned on any assets held within the trust. Trusts offer added benefits, such as protection from potential challenges to the will and privacy. The trust document is not a public document—versus a probated will, which does become a public document that anyone can then look up in the court.

 4. Gifting assets while you are alive

Gifting assets to loved ones before your passing is another strategy Ontarians can take to reduce the value of their estate subject to probate fees. However, this approach requires careful planning with lawyers and tax specialists to avoid potential gift tax implications, especially when dealing with real estate properties such as the family cottage as discussed in my recent article: Family legacy: How to pass along the family cottage-and 3 things to avoid.

5. Write a will—and make sure it’s valid

While not a way to avoid probate entirely, ensuring you have a valid and well-structured will can simplify the probate process in Ontario. Without a will, assets may be subject to intestacy laws, resulting in a more complex and time-consuming probate process. Consult with a legal professional to create a clear and legally-sound will that reflects your wishes.

6. Reduce the value of your estate

Minimizing the overall size of your estate is an effective strategy to lower probate fees. This can be achieved through financial planning, gifting and other methods to distribute assets when you’re alive, reducing the taxable value of your estate.

7. Consider segregated funds

Segregated funds can be an advantageous tool for estate planning in Ontario, particularly when it comes to avoiding probate. One significant benefit is that these funds include a built-in beneficiary designation, allowing assets to pass directly to named beneficiaries outside of the probate process. This means that upon the investor’s passing, the funds are swiftly and efficiently transferred to the beneficiaries, bypassing the time-consuming and costly probate process. This not only expedites the distribution of assets but also ensures a higher level of privacy and protection for the estate.

Getting professional advice for probate fees in Ontario

Navigating the complexities of Ontario’s estate administration tax can be challenging, and the specific strategies to avoid probate may vary depending on individual circumstances. It’s always smart to consult with an experienced estate lawyer and/or financial advisor who can provide tailored advice. They can give you guidance on how to minimize the probate tax liability, while ensuring compliance with provincial regulations. By taking proactive steps, you can ensure a more efficient and cost-effective transfer of assets to your loved ones while minimizing the legal complexities associated with probate fees.

Read more about estate planning:

• How to divide the assets of an estate between beneficiaries
• Should you use home equity to buy a house for your kids?
• How to avoid probate fees in Canada
• When does the role of power of attorney end—and estate trustee begin?

About Debbie Stanley, TEP, MTI

Debbie Stanley is an estate and trust professional, and CEO of the estate firm ETP Canada. She is a writer, speaker and regularly featured guest on Zoomer Radio.

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