Estate Administration Tax – Early Payment and Recent Reforms


As you may know, the appetite of persons to be the Estate Trustee of an Estate has been significantly dissipated as the result of recent changes relating to obligations for the payment of Estate Administration Tax.  In an abbreviated form, the Estate Trustee/Executor named in the Will has a responsibility to report to the Minister of Finance, Ontario, within 90 days following the issuance of “Probate” by way of an Estate Administration Tax Return.  The Return must report exactly what is due by the Estate and the Beneficiaries for “Probate Fees” on the Estate.  The penalties to the Estate Trustee for failing to report or to under report are personal.  Both penal and financial. Yet the Estate Trustee, himself/herself, may never receive any compensation whatever for assuming the personal liability.

So here is the abbreviated version: Estate Administration Tax is payable at the moment of the Application for “Probate” either with or without a Will.  Regardless of the time it takes to obtain “Probate” (variously, on average, 6 weeks to 12 weeks), the Estate Trustee as Applicant for Probate has a personal responsibility to both the Beneficiaries as well as to the various levels of government.  Accurate reporting of the value of the Estate upon which the calculation is made for the payment of the Estate Administration Tax is critical.

But here is the reality: To overpay Estate Administration Tax at the time of application gives rise to an entitlement for an application for refund of the overpayment.  The problem is that the overpayment will take at least 6 months and maybe as much as a year to obtain back from the government.  They like to receive the money; they just don’t like to pay it out.

Accordingly, I strongly encourage the underpayment of the Estate Administration Tax at the time of the filing of the Application.  If it turns out that the assets of the Estate are higher than what was initially submitted at the time of the filing of the Application, simply pay the surplus that was not included earlier.  No requirement for Refund.  No 6-10 months waiting.  Remember there is still, within 90 days following the date of the issuance of the Certificate of Appointment of Estate Trustee the necessity to file the Estate Administration Tax Return with the Minister of Finance but even that can be done based upon the original valuation and “topped-up” later.

Here’s an example: Gentleman Matthew dies intestate (without a Will) in 2014 leaving wife and daughter but owning at the date of death shares in a privately held Corporation the value of which is largely not capable of being determined until either the remaining Shareholders buy out the Estate or the shares are sold to a third party or potentially the entire business is sold to a third party.

The widow makes Application for Probate by way of a Certificate of Appointment of Estate Trustee without Will which was granted but only upon payment of the Estate Administration Tax estimated by the widow at the top end of what could potentially be the value of Matthew’s 60% shares in his Company.

It turned out that the estimate was significantly higher than the actual value achieved years later upon the sale of the Estate’s shares.

A large refund was requested upon the overpayment of the Estate Administration Tax paid at the time of the Application (which was necessary in order to permit the widow to even deal with the Estate and all the other items within the Estate). 

The Application for refund was filed in March 2016 and eventually in September 2016, the Court finally got around to issuing a refund.  In the interval, the widow, who did not have any other source of income, has overpaid the Estate Administration Tax from resources that could well have been spent better in underwriting the surviving family members.

The take-away:  I strongly recommend that the Estate Administration Tax be understated upon its payment. That takes nothing away from the obligations of the Estate Trustee to provide a payment of the Estate Administration Tax as finally determined based upon the value of the assets as eventually determined.

Estate Administration Tax: The Final “Cash Grab” by the Government of Ontario

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As we all know, Estate Planning, to minimize taxes, has long been the “mantra” of professional advisors. Sadly, current reports suggest no more than 50% of Canadians even have Wills. Without harping on that, read on for this tragedy.

Bob and Mabel, married over 50 years, with 3 grown children, dutifully prepared their Wills in 1994. The Wills were reciprocal and dealt essentially with identical items.

JUST ONE TRAGIC CASE

Bob died in 2016. Mabel wished to sell their family home to downsize. To her astonishment (and despite all of the right things about joint accounts, designated beneficiaries on investments outside the Estate and with full expectation that whatever was “his” would be “hers” and vice versa) the family home was registered as Tenants in Common.

What does that mean? It means that Bob owned 50% and Mabel owned 50%. Upon Bob’s death, Bob’s Estate owned 50%. Mabel did not own Bob’s 50%.

However, the house was registered Tenants in Common also referenced, to their ignorance (obliquely) in their reciprocal Wills in 1994. If the house were registered as Joint Tenants, on Bob’s death, Mabel would own the house with no costs.

To Mabel’s astonishment (and significant cash cost) the family home could not be sold without “probate” on Bob’s Will. She needed to mortgage the family home to raise money to buy a downsized house, but could not without probate on Bob’s 50% interest in the family home.

The Wills provided the survivor would leave the family home to the surviving spouse to live in as long as he/she wished, and to decide on when or if to sell but then 50% only of the interest (in this case, of Bob) would go to Mabel and the remaining 50% would go to Bob’s 3 children. That meant Bob’s 50% ownership in the house is split into two: effectively 25% to Mabel and 25% to be held by the children. Mabel did not control Bob’s 50% or even inherit it fully.

Mabel must get probate on Bob’s Estate. Cost: Estate Administration Tax at 1.5% of Bob’s 50% interest in the house. That probate fee is totally thrown away had it been that Bob and Mabel had taken the title as Joint Tenants. The probate fees Mabel has to pay on Bob’s share of the house together with her legal costs to file the Application in order to get probate were necessary in order to deal with the sale of the house. Mabel’s costs thrown away in this case: $20,650 plus costs; all taken away by the government without any benefit to the wife or the kids.

THE TAKE-AWAY

1. If you expect “what’s his is mine”, check to be sure; may not be so;

2. A 1994 Will is woefully overdue for review and update;

3. Estate Administration Tax is nothing less than a cash grab on whatever has been saved by the deceased and ought to be avoided at all costs and every time. That means to avoid probate fees.

This tragedy could have totally been avoided had Bob and Mabel reconsidered the contents of their Wills in the last 25 years or for that matter reaffirmed exactly what their intentions were to be sure that their testamentary wishes were matched by what they had actually prepared in 1994.

Estate Administration

Welsh Law Estate PlanningOne of the complexities (in fact, it may be the most severe) in the administration of estates is the lack of information about what the Testator (the Deceased) had in his head regarding his business affairs before the Testator died.

All too frequently, the Widow (or Executor) is left with picking up pieces of the Deceased’s business, sometimes (and all too frequently) up in th air, not documented and accordingly relying upon personal connections or, more frequently, “understood” relationships.

Unfortunately for the Executor, these “loose ends”also result all too frequently in little estate recovery, legally uninforceable “relations”, loss of estate value and, most disturbingly for the Testator’s successors, little to show for the business of the Deceased.

So, the warning is:  Every business transaction needs records.  Every business “understanding” needs paper flow.  Every “gentlemens’ agreement” needs a record.  Every businessman who doesn’t is both foolish and actively prejudicing the family for which he is, in the first place, undertaking his business.

Warning expressed.

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