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 180 days following the issuance of “Probate” by way of an Estate Information Return. The Return must report exactly what is due and what has been paid 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. That’s fines and prison. 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 a reasonable approximation of the value of the Estate Administration Tax, within reason, 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 180 days following the date of the issuance of the Certificate of Appointment of Estate Trustee the necessity to file the Estate Information 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. She paid over $110,000 in taxes, which incidentally, 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 reported reasonably, but with extreme caution and within reason, 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. This could have been 100% avoided had Matthew hired us to prepare his Will. He didn’t (this is a true story).
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This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.