Why don’t people like Probate tax in Ontario?
Let’s be honest, probate is less about the money and more about it just being a pain for your poor, unsuspecting Executor. The process can be time consuming and frustrating.
What is Probate/EAT Tax?
Once someone dies, their property and assets become an “Estate”. You don’t have to own any property to have an Estate, anything you leave behind can be considered part of an Estate. Probate tax in Ontario is a tax that is levied against your Estate upon death. In Ontario, Probate tax is called Estate Administration Tax (EAT for short)…we think it’s appropriately named because it does eat away at your Estate. (insert giggle here)
Who is subject to Probate/EAT Tax?
As of January 2020, residents of Ontario that have an Estate value of over $50,000 are subject to Probate/EAT. If your Estate value is under 50k, you will have to file an EAT Return, but shouldn’t owe any money.
What is Probate/EAT Based on?
Probate/EAT is based on what you possess when you die (even if you owe money on it).
Here’s an example: Oscar gets a $20,000 car loan in 2020. He passes away in 2022. The car is worth $10,000 on the date of his death, but he still owes $15,000 on that loan. On the EAT Return form they only want to know about the asset, so his Estate will be taxed on the $10,000 car (even though the Estate is technically in the hole for $5000 worth of debt).
The only debt that can be used against your assets on the form is debt levied against your home (Mortgages or Home Equity Lines of Credit).
Check out the Ontario Probate/EAT Return Form here (Gov’t of Ontario Website): http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbforms.nsf/FormDetail?OpenForm&ACT=RDR&TAB=PROFILE&SRCH=&ENV=WWE&TIT=9955&NO=9955E
How Much Will Probate Cost?
This “Calculating the EAT Tax” portion is courtesy of the Ontario Government website:
You do not need to pay Estate Administration Tax if the value of the estate is $50,000 or less. However, you must still file an Estate Information Return within 180 calendar days after the estate certificate has been issued.
For estates valued over $50,000, the Estate Administration Tax will be calculated as $15 for every $1,000 (or part thereof) of the value of the estate. The estate value is rounded up to the nearest thousand. So, for an estate valued at $239,250, the tax rate would be calculated on $240,000.
The Estate Administration Tax is calculated on the total value of the estate. For example, for an estate valued at $240,000, the tax would be calculated as follows:
$0 per $1,000 for the first $50,000 of the estate
$15 per $1,000 for the remaining $190,000 of the estate
$240,000 – $50,000 = $190,000
$190,000 ÷ $1,000 = $190
$190 X $15 = $2,850
The total of $2,850 payable to the Minister of Finance.
Bank accounts, real estate, and investments are all considered and included in the estate if they were solely owned by the deceased and willed to the Estate. If they were jointly owned, in most cases, would be transferred to the surviving owner.
Why Does Probate Take So Long?
Typically we see probate take a year or more. This could be because the executors have to work together, potential taxes owing have to be calculated, time in court, and anything that has to go through government channels simply takes time.
The Money is Tied up in the Probate/EAT process…Now what?!
Your Executor needs to have money upfront to cover the funeral, final expenses, and legal costs. The Executor and the Beneficiaries can’t easily access funds tied up in the probate process. So, what can you do now to prevent this?
First, get organized now, while you are still alive and in good health. Sally really loves that necklace and Tommy has always admired that antique hutch in your basement and now he has his own place- give those things away while you’re living and enjoy the smiles on their faces! All while minimizing Probate because it reduces the value of your estate.
Another way people minimize Probate is to add your children, or really anyone you want as joint owners on properties/assets. This can be risky; consider seeking legal advice beforehand.
The best way to bypass Probate/EAT is to determine what can be set up with directly named Beneficiaries (not the Estate). Life Insurance backed investment products allow you to do just that; that’s one reason we love them here at Bowie Financial Inc. Our clients enjoy the security of Annuities, Segregated Funds, and GICs/GIAs; while they are living and their Heirs are pleased that these assets are paid out fast and painlessly in a matter of weeks. Bowie Can Help ensure that your loved ones receive money quickly in a time of need.