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Tax, Tax and More Tax: Probate Fee Planning for Extra-Jurisdictional Assets

If you've been following the recent Federal Budget changes to testamentary trust taxation, the proposed (but now defeated) Ontario Budget with its increased taxes on higher-income earners, tobacco and airplane fuel, and the recent changes to the Ontario Estate Administration Tax Act (see my December, 2012 blog "The New Ontario Estate Administration Tax Regime - What you need to know"), you may be thinking you need to move tax planning further up in priority on your "to do" list. But there is good news: if you have assets outside Ontario, you can effectively plan for the administration of such assets on your death while avoiding the necessity of paying Ontario Estate Administration Tax (also known as probate fees) on the value of such assets.

Estate Administration Tax is currently levied when a primary grant of probate is applied for in Ontario, based on the value of a person's worldwide assets which pass through their estate. The current rate of the tax is $5 per $1,000 up to $50,000, and $15 per $1,000 on the value of assets over $50,000. Of the assets which pass through an estate, only real property located outside of Ontario is exempted from the calculation of the value of the estate for the purposes of the Estate Administration Tax. This effectively provides for a 1.5% wealth tax on the value of the estate assets for all estates of Ontario residents, or $15,000 per $1M of assets. No deduction is allowed for any debts except those which are secured on real estate, such as mortgages and secured lines of credit (credit card debt or unsecured lines of credit are not deducted - the tax is on the gross value of a person's assets and not their net worth). If you have a high-value estate, this can be a significant expense.

While real property located outside Ontario is exempted from the value of an estate for Ontario Estate Administration Tax purposes, other extra-jurisdictional assets are not. Bank accounts, shares in private corporations, personal effects - all these are included in your Ontario estate value and subject to Ontario Estate Administration Tax, even if these assets do not require a probate certificate to administer. In some cases, the jurisdiction outside Ontario may require the Ontario Will to be probated in that jurisdiction as well, which can result in probate fees being paid twice on the same assets.

Fortunately, there are planning options available, as discussed in our Client Advisory "Planning to Minimize Estate Taxes under the Estate Administration Tax Act, 1998 (Ontario)", where we set out a number of possible options for minimizing Estate Administration Tax. For extra-jurisdictional assets, one option is to implement a multiple will structure, and have separate wills to deal with assets in different jurisdictions. Ontario allows for a grant of probate to be obtained which is limited to the assets named in a Will. You can plan for extra-jurisdictional assets by executing one will for Ontario assets requiring a probate certificate for administration, and another will for other assets, including extra-jurisdictional assets. If any extra-jurisdictional assets are located in other high-probate fee jurisdictions, you can execute multiple wills to minimize your estate's exposure to such fees/tax as well as Ontario Estate Administration Tax by following a properly thought-out and integrated plan.

For example, some provinces such as Alberta levy a fee of a maximum of $400. If you have any Alberta assets and your executor is able to administer most of your assets with an Alberta grant of probate (many financial institutions will require a grant of probate from a province or territory but not necessarily an Ontario one even if your accounts are in Ontario), at a fee of $400, you could execute one will only for those Ontario assets which will likely require an Ontario grant of probate to be administered, such as Ontario real estate, and another will for your other assets.

To illustrate the potential savings, assume your Ontario real estate is worth $1M and your remaining assets are worth $2M. If you executed one Ontario Will, your estate would pay Ontario probate fees of approximately $45,000 (assuming you did not hold any real estate in Alberta), but if you executed two Wills, one for Ontario real estate and one for your other assets, your estate would pay $15,000 in Ontario probate fees and Alberta probate fees of $400, a potential savings of approximately $30,000 (assuming all of your assets other than Ontario real estate can be administered with an Alberta grant of probate).

Multi-jurisdictional assets create multi-jurisdictional estates, and require proper, integrated planning. Not all plans which are effective for Ontario residents will be optimal for those with multi-jurisdictional assets, and plans for different jurisdictions should never be done in isolation. Sometimes less is just more tax, so consider multi-jurisdictional estate planning in appropriate circumstances.

- Susannah B. Roth

Don't miss our next blog post on planning for beneficiaries with disabilities.

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.

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