If you consult a lawyer or financial advisor for assistance with respect to an estate plan, you are likely to encounter the terms "probate" and "probate fees," as well as a description of strategies to avoid "probate." The word probate, while still very frequently used by lawyers, may confuse people who do not have a legal background. Part of the confusion stems from the fact that the word probate is an old-fashioned term that can refer either to a legal process or to a particular kind of court order.
Adding to the confusion in Ontario is that courts no longer use the word probate officially. Instead, the court uses “Certificate of Appointment of Estate Trustee” and “Estate Administration Tax” to describe a grant of probate and the related fees. It is important to understand what the term probate means, as well as its associated benefits and disadvantages, before deciding whether to avoid or to proceed with this court process.
The probate process in Ontario involves an application to the court. In accordance with the Rules of Civil Procedure, a probate application is filed with the Superior Court of Justice in the jurisdiction in which the deceased permanently resided prior to his or her death. As part of the application, the estate trustee swears an affidavit to the truth and verification of the estate assets. The estate trustee may be audited for the amount of the estate value reported within the probate application and the Estate Information Return, which must be filed within 90 days after the issuance of probate, and may be required to account for any miscalculation or estate assets excluded from the valuation.
A will provides the estate trustee, or executor, the authority to act on behalf of the estate. Applying for probate allows an estate trustee to easily prove that pre-existing authority to a third party. Once the estate trustee is granted a Certificate of Appointment of Estate Trustee, he or she may hold him or herself out as having the authority to administer the estate. Probate does not bestow such authority, but instead provides evidence of that pre-existing authority.
In fact, the term probate is derived from the Latin word probare, meaning “to prove”. Depending on the circumstances of the estate, applying for a certificate of appointment may be a necessity or completely unnecessary. In situations of intestacy (where no last will and testament was left by the deceased), the authority of the estate trustee is derived from the Certificate of Appointment of Estate Trustee Without a Will itself and an application for such a certificate must be made in order for the estate to be administered.
The main reason to probate a will is to obtain the ability deal with certain kinds of assets or certain kinds of third parties. In particular, if the estate includes real estate that is not held in joint tenancy, probate is usually necessary to transfer title to the property. Also, often depending on the balance of the relevant bank accounts, banks frequently require probate as proof of the estate trustee's authority to administer estate assets before they will allow an estate trustee access to accounts.
Though less frequently considered, another potential benefit to obtaining probate is the effect that it has on certain types of claims that may be made against the estate. Some limitation periods begin running from the date of probate. For example, under the Succession Law Reform Act, a claim for dependants' support must be made within 6 months of issuance of the Certificate of Appointment of Estate Trustee. If a trustee believes that claims may be made against the estate at some point in the future, it may make sense to apply for probate, even if it is not otherwise required due to the nature of estate assets.
The principal downside to probate is the costs involved with the process, in the form of "probate fees". Also known as Estate Administration Tax, probate fees are calculated based on the total value of the assets of the estate that are to be distributed in accordance with the will and are typically payable out of the assets of the estate. In Ontario, the current Estate Administration Taxes are calculated at a rate of $5 for each $1,000, for the first $50,000 of an estate's value, and $15 for each $1,000, for the value of the estate exceeding $50,000. For an estate with significant assets, such as real estate, probate fees can be high enough to incentivize strategies to avoid the need to apply for probate or to limit the assets in respect of which probate fees will need to be paid.
Another reason that some individuals may wish to avoid probate is to maintain privacy. Once a will is admitted to probate and a Certificate of Appointment of Estate Trustee With a Will is issued by the court, the will becomes a public document and is accessible to anyone who wishes to see it.
The practice of having multiple wills can allow for some flexibility in estate planning for those who wish to reduce the fees triggered by the probate process or maintain privacy in respect of certain assets. As mentioned above, Estate Administration Tax is normally calculated on the basis of only the assets or types of assets listed within the will admitted to probate. Accordingly, if someone has two or more wills, probate fees are paid only on the assets distributed by the will that is submitted to the court as part of the probate application. A second will can address the distribution of assets that the testator wishes to keep private and that do not need to be probated in order to be dealt with by the estate trustee. The practice of using multiple wills for estate planning is increasingly popular in Ontario. It also has its disadvantages, however.
The more complex an estate plan, the greater the opportunity for drafting errors or interpretation issues. A testator should review the advantages and disadvantages of probate and the potential use of strategies to avoid probate of some or all assets with a lawyer when creating or updating an estate plan.
Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.
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