What Ontario’s new probate rules mean

Valuing an estate for probate used to be relatively simple in Ontario: executors entered the total value of the estate on the application for probate, signed an accompanying affidavit stating the valuation was correct, and that was usually that.

Not anymore. As of January 1st, Ontario executors (known as estate trustees) must file an Estate Information Return detailing the valuation of specific assets in an estate, which affects both executors and testators.

Plugging the holes

Wilmot George, vice-president of tax, retirement and estate planning at CI Investments, explains the new rules were enacted because many in the estate planning industry suspected some executors were understating their estates’ values — in some cases, significantly.

“The government believed that they could tighten the screws a little bit and put themselves in a better position to audit an estate if the need arose,” says George.

Under the new rules, executors will have 90 days to file a detailed Estate Information Return accompanied by documentation supporting the value of estate assets; officials will retain the right to audit the valuation within four years of filing. As George points out, these changes should deter intentional underestimation of estate value in order to minimize probate taxes.

While George says the additional paperwork isn’t exceptionally technical or complicated, the regulations do make an executor’s job more complex. When listing an estate asset, executors must include a general description, detail its location and its value on the date of death, provide the percentage of ownership, and list identifying characteristics such as account numbers and number of units held.

George suggests executors may want to seek a professional assessment for hard-to-value assets such as real estate or personal effects. With other assets such as investment accounts, they may not need one.

But, he says, “We’ll have to give it a little more time to see how strict the government is going to be about valuation as well. It’s important for executors to know they’ve got an additional responsibility here And if they fail to honour this responsibility, they can find themselves subject to fines of up to two times the tax payable, or potentially imprisonment.”

The changes may give testators cause for concern as well, as they “might make [the] testator think a little bit more about options for assisting their preferred choice.”

One option may be to name a professional trustee as co-executor. This way, George explains if the family member who is named executor doesn’t have any expertise in this area, he or she can lean on that co-trustee to carry out the administrative tasks of the job.

Not a complete surprise

Craig Ross, partner and department head of wills, estates, and trusts at Pallett Valo LLP in Mississauga, says he wasn’t surprised by the new probate regulations.

“There was a general feeling that people weren’t taking [valuations] too seriously — or at least when assets weren’t too serious, they weren’t being too serious,” he notes. For instance, Ross says, executors may have forgotten about the ATV or tractor the deceased kept in her cottage up north. Ross also says the Ontario government also saw this as an easy way to raise revenue that would not attract headlines.

While the rules may have changed, Ross says the responsibilities of executors haven’t. The new regulations “have added a legal cost to the process,” he says. “But [aren’t] they just making us do what we should have been doing anyways?”

He agrees the new regulations will encourage testators to do even more planning. “For all their efforts, what Ontario might be doing is actually moving more people out of the probate process,” and instead moving assets into alter-ego trusts or joint ownership, or using named beneficiaries and dual wills.

As Ross explains, there’s always been a financial argument (avoiding probate fees) for moving assets out of the estate before death. The additional paperwork and filing hassles strengthen those arguments. “There was always good reason to avoid the fee if you could. Now you’re avoiding the process, and the liability, itself.”