Probate is the often-dreaded process where an estate trustee receives a Certificate of Appointment of Estate Trustee which confirms their authority to administer the estate. While not mandatory, if there is a will, third-party institutions such as banks or the land registry office, when dealing with real property, typically require that probate be obtained in order to deal with the assets of the estate.
In Ontario, part of the probate process includes payment of
Estate Administration Tax (EAT) (commonly referred to as probate
fees) which is levied on the fair market value of the assets of the
estate. In Ontario, the current rate of EAT is 1.5% on the value of
assets as at date of death over $50,000, or $15,000 per $1,000,000
of assets.
For the average Ontario resident, real estate often forms a
significant amount of the value of an estate, and the more your
real estate is worth, the more EAT will be payable by your estate.
By minimizing the amount of EAT payable on your
death, you consequently maximize your beneficiaries'
inheritance.
The first dealings exemption, if applicable, is one way that you
may be able to minimize the amount of EAT payable by your
estate.
What is the First Dealings Exemption?
The first dealings exemption applies to certain properties that
were registered under the Registry Act and subsequently
converted to the Land Titles system (i.e.: Land Titles Conversion
Qualified (LTCQ)). Upon conversion, a property owner (or their
legal representative such as an executor) is entitled to one final
substantive title registration under the old Registry Act
rules, which do not require probate to deal with real
property.
Benefit of the First Dealings Exemption
The first dealings exemption allows your estate to avoid the
legal costs and taxes involved with the probate process, if your
estate plan is structured accordingly.
Estate Planning Considerations
Importantly, even if a property qualifies for the first dealings
exemption, if the deceased left only one will and probate is
necessary to manage other estate assets, then all assets of the
estate inclusive of the first dealings exempt property must be
declared for the purposes of probate and EAT must be paid on all of
those assets.
As part of your estate planning, legal title for real property
should be reviewed to (1) verify how title is held and (2) to
determine if the first dealings exemption is applicable to any
property. By identifying the status of real property, early
consideration can then be made of whether a secondary will is needed to carve out real
property that is eligible for the first dealings exemption. EAT is
not paid on the value of assets governed by the secondary will as
the secondary will specifically deals with assets that do not
require a probated will to administer, and it is therefore not
probated.
Key Points about First Dealings Exemption
The first dealings exemption, if applicable, can maximize the value of an estate by avoiding EAT on real estate to which it applies. Although only available to select properties the advantage of the exemption, as well as other benefits, makes review of title to your real property a worthwhile and important step in your estate planning.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
