Ontario Probate Guide for Homeowners

The Short Answer

Probate confirms the will, when there is one, and confirms the estate trustee’s authority to deal with the estate. In Ontario, the court document issued through probate is called a Certificate of Appointment of Estate Trustee.

Probate and Estate Administration Tax are not the same thing. Probate is the court process. Estate Administration Tax is the tax that may have to be paid when the estate applies for the certificate.

A home can sometimes pass to another person without probate. That may reduce Estate Administration Tax and delay. But changing ownership to achieve that result can also:

• cause the tax rules to treat part or all of the home as sold at its current market value, even though no money changed hands;
• give someone immediate ownership rights in your home;
• make future growth on that person’s share taxable;
• expose the home to a child’s creditors, separation or family dispute;
• create accounting, annual tax-return, appraisal and legal costs; or
• produce a result that conflicts with your will.

What Probate Means in Ontario

“Probate” is the everyday name for a court process. The court confirms the will, when there is one, and confirms who has authority to manage the estate.

The person who manages the estate is called the estate trustee. Many people still use the traditional word executor. The Ontario court document that confirms this person’s authority is called a Certificate of Appointment of Estate Trustee.

The formal application is called an Application for a Certificate of Appointment of Estate Trustee. In ordinary conversation, it is a probate application.

A Small Estate Certificate is a simpler court process for eligible estates valued at $150,000 or less.

For a home, the certificate may be needed when the land registry requires court confirmation of the estate trustee’s authority before the property can be sold or transferred.

Ontario Estate Administration Tax

When an estate applies for the certificate, it may have to pay Estate Administration Tax. This tax is often informally called the probate fee or probate tax, but it is not another legal name for probate.

Under the current Ontario rules:

• the tax is $0 on the first $50,000 of estate value; and
• $15 for every $1,000, or part of $1,000, above $50,000.

These examples assume the full amount shown is included in the probate application. The tax is not automatically charged just because someone inherits a home.

After the certificate is issued, the estate trustee generally must also send Ontario an Estate Information Return within 180 calendar days. This return reports the estate assets and values used to calculate the tax.

Planning How Probate Costs Will Be Paid

Trying to reduce Estate Administration Tax and making sure the estate can pay it are two different problems. A homeowner may decide that leaving the home through the estate is the safer plan, but still want to prevent the estate trustee from having to advance the tax personally.

Why a joint account with an adult child can be risky

Adding an adult child as a joint account holder solely to fund probate may create more risk than the small amount of Estate Administration Tax saved on the cash:

• the child may obtain immediate withdrawal authority;
• the money may become exposed to the child’s creditors or financial problems;
• removing the child later may require the child’s cooperation; and
• other beneficiaries may dispute whether the balance was a gift to the child or money held for the estate.

A Supreme Court of Canada decision, Pecore v. Pecore, shows why intention matters. When a parent adds an adult child to an account without receiving payment, the law does not automatically assume that the parent meant to give the child all the money. Unless there is good evidence of a gift, the child may have to hold the money for the parent’s estate. A joint account should therefore not be treated as an automatic probate solution.

The estate trustee - traditionally called the executor

The estate trustee is the person responsible for administering the estate after death. This person is traditionally called the executor. The will normally names a primary estate trustee and should also name an alternate in case the first person cannot act.

The estate trustee’s work can include locating and protecting assets, maintaining the home, applying for the Certificate of Appointment of Estate Trustee, paying Estate Administration Tax and other expenses, filing tax returns and distributing the estate according to the will. If there is no will, an eligible person must apply to the court to be appointed.

How to tell the estate trustee about the reserve

Speak with the person before naming them, or confirm that someone already named in your will remains willing to act. Explain that the account remains entirely in your name and is intended to help the estate pay its initial costs.

Give the estate trustee enough information to locate the account:

• the financial institution and type of account;
• the branch or contact information;
• the last four digits of the account number;
• the purpose of the reserve and its approximate target amount; and
• the location of a recent statement.

Do not give the estate trustee your debit card, PIN or online-banking password. After death, the trustee should approach the financial institution with the will, proof of death and the documents required by that institution. Ask the bank during your lifetime whether it can issue a bank draft from the deceased customer’s account directly for Estate Administration Tax before the estate certificate is issued. Bank procedures differ, so obtain the answer in writing if possible.

What is an estate-information package?

An estate-information package is not an official Ontario form and does not replace a will. It is a secure, informal organizer that helps the estate trustee find the people, documents and accounts needed to begin administering the estate.

Store the package securely, tell both the primary and alternate estate trustees where it is, and review it at least annually and after any major change. Do not place it somewhere that nobody can access after your death.

If the estate’s principal asset is the home and the financial institution will not release cash for the tax, the estate trustee may need to advance the payment temporarily and be reimbursed by the estate. An Ontario estates lawyer can document the intended reimbursement and discuss other arrangements when the required amount is substantial.

Why Avoiding Probate Can Backfire

Estate Administration Tax and income tax are different. A home can avoid probate and still create an income-tax bill.

For example, if you give part of your home to a child, the tax rules will usually treat you as if you sold that part at its current market value, even if the child paid nothing. Tax professionals call this a disposition at fair market value. This guide uses the plainer phrase “treated as sold at market value.”

Probate planning can also change legal ownership. A person added to title may receive rights that go far beyond helping with estate administration.

Adding a Child to Home Title

A common suggestion is: “Add your child as a joint owner so the home passes automatically.” In some carefully planned situations, a deceased owner’s share can pass directly to the surviving joint owner. But that result is not guaranteed merely because two names appear on title.

Income-tax risk

If you truly give a child part of the home, the Canada Revenue Agency generally treats you as if you sold that part at its current market value. Your principal-residence exemption may protect some or all of the increase in value while you owned it, but only if the home qualifies and the required tax reporting is completed.

The child generally begins a new ownership period. If the child does not live in the home or chooses to designate another property as a principal residence, later growth on the child’s share may be taxable.

If the property was rented, used for business, changed use, included excess land or was not your principal residence for every year, the tax analysis becomes more complicated.

Ownership and control risk

A genuine gift may give the child immediate rights. Depending on the arrangement, that can affect your ability to sell, refinance or change your estate plan. The child’s creditors, incapacity or family dispute may also become relevant.

Joint title does not answer every question

The name on title does not always tell the whole story. A person can be listed as an owner but still be expected to hold the home for someone else. Lawyers call this difference “legal title” versus “beneficial ownership.”

If a parent adds an adult child for convenience, a later dispute may ask: Did the parent intend to give the child part of the home now, or was the child only helping with paperwork?

The answer can determine whether the home passes directly to the child or must be shared through the estate. The parent’s intention should be recorded clearly by a lawyer at the time of the change.

Possible land-transfer-tax issue

A gift of a home may not create Ontario land transfer tax when the child pays nothing and takes on no debt. But if the child assumes part of a mortgage or another debt, land transfer tax may apply. Have a lawyer review the transfer before anything is registered.

Trusts and Ontario’s First-Dealing Procedure

A trust is a legal arrangement in which one or more people, called trustees, hold legal title to property and manage it under written rules for named beneficiaries.

Some homeowners aged 65 or older consider a special type called an alter ego trust. Couples may consider a joint spousal or common-law partner trust. These arrangements can help someone continue managing the home if the homeowner becomes incapable, and a home owned by the trust may stay outside the homeowner’s estate.

However, moving a home into a trust does not make income tax disappear. Depending on the arrangement:

• tax may be postponed when the home enters the trust, but it is not necessarily eliminated;
• at a later death, the tax rules may treat the home as sold at its current market value;
• the trust must meet detailed rules before it can use the principal-residence exemption;
• the trust may have to file an annual T3 trust income-tax return and report who controls or benefits from it;
• legal, accounting, appraisal and management costs may continue for years; and
• the written trust rules may limit who controls the home and how easily the plan can be changed.

The phrase “first dealing” refers to a narrow Ontario land-registration exception. Some older properties were moved by the government from the Registry system into the Land Titles system. If the estate’s transfer is the first registered transaction after that conversion, the land registrar may allow the transfer without probate.

Most homeowners cannot determine eligibility from an ordinary deed or tax bill. An Ontario real-estate or estates lawyer must check the official property record, known as the parcel register, along with the title history and required evidence. It is not a do-it-yourself form.

Three Ontario Examples

Example 1: The $1 million home

Maria owns an Ontario home worth $1 million. Assume the full value would otherwise be included in an estate-certificate application. The illustrative Estate Administration Tax would be $14,250.

Maria considers giving half the home to her daughter. The tax rules would usually treat Maria as if she sold half the home at its current market value, even though her daughter paid nothing. The principal-residence exemption may protect Maria from tax on the increase in value while she owned it, but only if all requirements are met.

But the daughter now has a new ownership interest. If the home later increases from $1 million to $1.2 million, the daughter’s half has increased by $100,000. Whether that later gain is taxable depends on the daughter’s circumstances and principal-residence eligibility. Maria has also introduced ownership, control and family-risk questions to save a maximum illustrative probate cost of $14,250 on the home.

Example 2: Adding a child “for convenience”

Helen adds her son to the title of her home because he helps with repairs and paperwork. She continues to pay all expenses and intends her three children to inherit equally.

After Helen dies, the son says the home passed directly to him as the surviving joint owner. His siblings say he was added only to help Helen and was expected to share the home through the estate.

The family now needs evidence of Helen’s intention. A convenience arrangement intended to simplify the transfer has created an ownership dispute.

Example 3: Giving away the whole home

George gives his Ontario principal residence to his daughter but plans to continue living there for the rest of his life. The tax rules may treat George as if he sold the home at its current market value. The principal-residence exemption may protect him from tax on the increase in value while he owned it, if all requirements are met.

The daughter now owns the home. Later growth may be taxable to her if she cannot designate it as her principal residence. George may also have lost the legal ability to sell or mortgage the property, and his continued right to live there must be protected properly.

The home may also be exposed to the daughter’s creditors, incapacity or relationship breakdown. Avoiding probate has changed ownership immediately; it has not merely simplified a future estate transfer.

These examples are simplified illustrations. They do not calculate personal tax or predict a legal result.

Strategy Comparison

Questions to Answer Before Acting

Before changing ownership of your home, ask your lawyer and tax professional to answer these questions in writing:

1. What exact probate cost are we trying to reduce? Calculate it instead of relying on a percentage or a general fear of probate.
2. Will the tax rules treat this as a sale today? Ask for a written estimate using the home’s current market value, original cost, cost of major improvements, principal-residence history and any rental or business use.
3. Who will be listed on title, and who will really own the value of the home? Record whether the change is a true gift, a trust arrangement or only help with paperwork.
4. Who will control the home? Consider sale, refinancing, occupancy, incapacity and the ability to change the plan.
5. Who receives the home at death? Confirm whether it passes directly to a surviving owner or through the estate, and make sure the result agrees with the will.
6. Who reports later growth? Confirm the tax treatment of the child’s ownership period and whether the child could designate the property as a principal residence.
7. What happens if the recipient dies first, separates, becomes incapable or has creditors?
8. What are the ongoing costs? Include legal work, accounting, valuations, tax returns, land registration and trust administration.
9. Would a simpler plan produce a better family outcome? Paying a known probate cost can sometimes be safer and less expensive than a complicated structure.

Documents to bring to the review

• your current will and powers of attorney;
• property deeds, the official property record (parcel register) and mortgage balances;
• purchase documents and records of major capital improvements;
• principal-residence, rental and change-of-use history;
• any documents about shared ownership or a trust; and
• a simple written statement showing who should receive the home and whether other beneficiaries should be compensated from the estate.

Official Sources and Further Reading

• Ontario — Estate Administration Tax
• Ontario — Apply for probate of an estate
• Ontario Court Services — Estate forms and Certificate of Appointment of Estate Trustee
• Ontario — Estate planning and wills
• Government of Canada — Powers of attorney and joint bank accounts
• Ontario — Land transfer tax and nominal consideration
• Ontario — Bulletin 2000-6: Estate documents and first dealings
• Canada Revenue Agency — Transfers of capital property
• Canada Revenue Agency — Principal residence
• Canada Revenue Agency — Capital gains when someone dies
• Canada Revenue Agency — Who should file a T3 trust return
• Supreme Court of Canada — Pecore v. Pecore