Toronto Estates and Trusts Monitor

Dear Readers -

After a hiatus, my blog returned last week and will now be published on Tuesdays and Thursdays. 

As (un)luck would have it, last Thursday I had a freak accident which resulted in a trip to the emergency room and 16 (count 'em!) staples in my knee.  The good news is I'll be fine - although I'm still achy at this point!  The bad news is (I hope you'll understand) blogging isn't top of my mind right now. 

I'm going to take the rest of December off my blog and will see you back here in January on Tuesdays and Thursdays. 

Have a Merry Christmas and a Safe and Happy New Year!

Megan

Figuring out how to divide your estate can involve making tough choices.  This is particularly the case when there are multiple potential beneficiaries who have differing (and sometimes conflicting) expectations about what they’re going to inherit from a loved one’s estate. 

In situations where the beneficiaries of the estate will be an individual’s children, a difficult decision can involve whether the estate is divided equally between them or whether different kids receive different shares.  A recent article from the Wall Street Journal considers some of the complications that can arise in both scenarios.

Sometimes, a decision about how to divide an estate can be driven by spite – a parent, angry that a child didn’t live up to expectations simply disinherits him.  However, frequently, the individual making the will has sound reasons for distributing his estate in a specific way. 

For example, it might have been that one child received considerable financial assistance when the parent was still alive, so the parent decides to use her will to “equalize” the situation between the children.  Or, one child might have considerably more financial resources than another and the parent decides to “help out” the poorer child. 

Whatever the rationale behind the way you divide your estate, there are a couple of things to keep in mind.  First, consider the legacy you want to leave behind.  Just because you had very good reasons for the way you decided to divide your estate does not mean that the beneficiaries will figure them out; instead, they may end up angry and bitter. Second, consider the way the distribution of an estate will affect the relationship between surviving family members – good intentions behind an estate plan might be rendered meaningless if the result is family infighting and broken relationships. 

It is a good idea to discuss the contents of your will with those who will be affected by it.  Although the idea of children expecting an inheritance may seem distasteful to some parents, a very common impetus for estate litigation is a child being unpleasantly surprised by the terms of a parent’s will – having a discussion while you’re alive can help stave off bitterness (and litigation!) when you’re dead.   

I’ve previously blogged about how a prospective estate trustee obtains probate when there’s no will, so today I thought I’d review how an estate trustee appointed under a will goes about obtaining probate (technically referred to as a “certificate of appointment of estate trustee with a will”). 

An estate trustee should first determine whether probate is actually necessary.  There is no law that requires an estate trustee to obtain probate – the estate trustee’s authority derives from the will itself, not a certificate of appointment.  However, frequently an estate trustee cannot take many administrative steps (such as calling in the proceeds of a bank account or transferring title to real estate) without having obtained probate. 

The material that the estate trustee must file with the court is set out in rule 74.04 of the Rules of Civil Procedure.  The necessary materials include the completed application, original will, an affidavit of execution establishing that the will was duly executed (and if one cannot be obtained, evidence that the will was duly executed), the certificate of appointment of estate trustee with a will, and an affidavit verifying that a notice of application has been served on those entitled to share in distribution of the estate. 

If there are unborn or unascertained beneficiaries of the estate or if a beneficiary is a minor, then The Children’s Lawyer and the minor’s parents must be served with the notice of application.  If a beneficiary is incapable then The Public Guardian and Trustee must be served.  An estate trustee applying for probate is justified in hiring a lawyer to prepare and file the application (and paying for the services out of the estate).  However, for the do-it-yourselfers, pre-formatted and fillable forms are available on the government website. 

The estate trustee is also required to pay the necessary probate fee (referred to as the “estate administration tax”) when the application is made.  The amount owing is based on the value of the estate.  The estate trustee does not have to pay the amount personally.  Generally speaking, banks will release a bank draft from the deceased’s account payable to the minister of finance for the amount due. 

In Ontario, where a prospective estate trustee applies for a certificate of appointment (colloquially referred to as “probate”), pursuant to s. 2(1) of the Estate Administration Tax Act she is required to pay the estate administration tax (often called the “probate fee”) – the exception being when the value of the estate does not exceed $1,000 - in which case no tax is payable.  The fee is made payable to the Minister of Finance (of the provincial government).     

The amount payable is based on the value of the estate – it is $5 for each $1,000 of the first $50,000 of the estate and $15 for each $1,000 for the amount over and above $50,000.  Our good friends at the Toronto-based accountancy firm Yale & Partners LLP have been kind enough to put together a probate fee calculator which makes estimating the amount owing all the easier!

Before figuring out how much tax is owing, it’s important to understand what assets are included in calculating the value of the estate for probate purposes.  An application for a certificate of appointment (such as the one used when the deceased dies with a will) includes a section where the value of certain assets is to be included (and the total value of these assets forms the basis for calculating the tax owing). 

Specifically, the assets to be included are the deceased’s real estate in Ontario (net of encumbrances) and the deceased’s personal property (and this includes cash, investments, and personal effects).  Note that with the exception of encumbrances on real estate (for example, a mortgage), a deceased’s debts cannot be offset against the assets listed on the probate application – this means that the probate fee is based on the gross value of the estate, not the net value. 

There is some property that is not included in the value on the probate application – and this includes real property outside of Ontario and assets that flow outside the estate (such as joint assets, and insurance policies/RRSPs/RRIFs with a designated beneficiary).

There are various estate planning steps that can be employed to reduce the probate fee – however, there are often risks that come in doing so.  It’s a good idea to make sure you understand the risks before taking any such steps.

A recent decision from the United Kingdom considered whether the will of an individual who had benefited only some of his children was properly executed.

Ranjit Singh died in March 2009.  Pursuant to the terms of a will he made in 1999, he left the bulk of his £870,000 estate to his three sons.  His three daughters didn’t fair as well – two of them received bequests of £20,000, while the third daughter received nothing.

After the deceased’s death, one of the daughters challenged his will on the basis that it had not been properly executed.  In the United Kingdom, the rules regarding the proper execution of a will are the similar to those in Ontario –  pursuant to s. 9 of the Wills Act 1837, the will must be signed by the testator in the presence of two witnesses who must then witness the testator’s signature in the presence of the testator.  

Here, the deceased’s daughter alleged that the witnesses to the will were not actually present when the deceased signed it.  One of the deceased’s sons (who was a lawyer) defended the will and argued that the reason the deceased had left his estate mainly to his three sons was because in Sikh tradition daughters are treated as being part of their husband’s family and financially provided for through dowries when they marry.  However, it’s not clear whether the son had any evidence to suggest the will had been properly executed. 

Ultimately, the court found in favour of the daughter and set aside the deceased’s will.  In considering the evidence, the judge found that there was strong evidence to suggest that the will was not executed properly.  Particularly persuasive was the evidence of one of the witnesses that he and the other witness were not present when the will was signed. 

The court found that notwithstanding the fact that setting aside the will would frustrate the deceased’s intentions regarding the distribution of his estate, given the will was not properly executed it simply wasn’t valid.  The effect of the court's decision was that the decesed's estate was distributed pursuant to the rules of intestacy and all his children shared in it equally.