A. Estate Assets
This project is concerned specifically with estate administration in Ontario and, accordingly, with estate assets. Estate assets are those solely owned by the deceased that do not have a designated beneficiary other than the estate. It is important to emphasize that a deceased’s assets do not always form part of the estate. As noted in the previous section, jointly-held assets with right of survivorship pass directly to the surviving joint tenant. Other assets such as insurance proceeds, RRSPs, RRIFs and pension benefits may have designated beneficiaries other than the estate. Where they do have designated beneficiaries, they pass directly to those beneficiaries. Because these assets do not form part of the estate, they are not subject to the probate process and are outside the scope of this project. Only estate assets are included in the definition of small estates.
B. Small Estates and Simple Estates
One of the key tasks in the project is to choose a meaningful definition of “small” estate. In preliminary interviews, some stakeholders noted that some estates of small monetary value may be relatively difficult to administer. Numerous complications can occur including, for example, concerns about the validity of the will or difficulty locating beneficiaries. In such cases, a simplified probate process may be inappropriate even for very small value estates. Therefore, the suggestion was made that the Law Commission of Ontario (LCO) focus, instead, on “simple” estates, that is, relatively straightforward and uncontentious estates of any value. A simple estate may involve, for example, a will with a named executor and no issues as to validity, commonplace assets all located within the jurisdiction, no minor or incapable beneficiaries and only a few beneficiaries who are easily located. A simple estate may be relatively inexpensive to probate even though it may have a high value.
Presumably, all Ontario estates would benefit to some extent from a simplified probate procedure. For example, British Columbia recently introduced new simplified Probate Rules and decided, as a result, that a separate small estate process was unnecessary:
The benefit of the small estate procedure was that it would be simpler and faster. The new probate rules have prescribed forms very similar to the small estate declaration proposed by the British Columbia Law Institute. The new probate rules make a distinction between simple and complex applications and ensure that the processing of an application is dependent upon the complexity of an application, rather than the value of the estate. Therefore, there is not any advantage to these provisions, because under the new probate rules all applicants will get the same benefits – those with simple applications in particular.
B.C.’s consideration of small estates was part of a much broader reform initiative devoted to simplifying estates law generally. In contrast, the LCO’s project is specifically concerned for testators and beneficiaries with limited resources. The LCO intends this project to be a more targeted examination of estates of small monetary value where the cost of obtaining probate may unduly diminish or even exhaust the estate. In such cases, the estate may remain undistributed or may be distributed informally without the procedural protections of the probate process. Therefore, the LCO considers that this project should be first and foremost focused on the monetary value of Ontario estates rather than their complexity.
Defining “small” estate by reference to an estate’s monetary value has the following three benefits:
- It should keep the project within its intended scope. A focus on uncontentious or “simple” estates would inevitably lead into an examination of Ontario estate administration generally and this could quickly expand beyond the LCO’s intent.
- It will address access to justice issues where the estate representatives of small estates are lower-income and, as a result, are practically precluded or dissuaded from accessing a legal process which, on its face, is available to all Ontarians.
- It is consistent with the approach in other jurisdictions where specialized alternative processes to the full probate system have been made available only to estates worth less than a specific monetary value.
Therefore, a small estate for the purpose of this project is an estate of small monetary value.
Another key issue is to determine what other criteria should be required for estates to be eligible for a simplified process. In what circumstances should it be appropriate to relax the legal protections of the full probate process and what should a simplified process look like?
Of course, the LCO might conclude that the current probate process remains necessary to protect estates of any value from fraud or improper administration. If so, there might still be ways in which access to the current process can be improved such as, for example, simplifying the forms or improving public education about the legal responsibilities of estate representatives and the importance of probate.
C. What Amount is Small?
Having established that a small estate is to be defined in relation to its monetary value, the issue of what range of values should be considered to be “small”, and how this should be calculated, will be addressed as part of the project. Defining a small estate process in relation to monetary value is necessarily somewhat arbitrary. Jurisdictions with small estate procedures have adopted a wide range of value limits in respect of a variety of different procedures, as discussed below. Canadian provinces have defined “small” in terms of values ranging from less than $3,000 to $50,000. United States small estate procedures reflect a similarly wide spectrum of values with some procedures available to estates worth as much as US$275,000. Recent law reform projects in Australian States have coalesced around the figure of AU$100,000.
In choosing a value limit for a small estate process, it is also important to consider how that value is to be calculated. It might be based on either the gross or net value of the estate. It also might be appropriate to provide for different value limits to respond to different circumstances such as the identity of beneficiaries or changes to the valuation of the estate. These more sophisticated formulas for calculating estate value have been implemented in some Australian jurisdictions as is discussed below. They add a degree of complexity to a small estate procedure but are intended to respond to different levels of risk in small estate applications.
D. Distinguishing Between Small Estates and Estate Planning
The cost of obtaining probate in Ontario greatly increased in 1992 with the introduction of the estate administration tax. Not surprisingly, several estate planning strategies have been developed to avoid the tax. Since the tax is only payable on obtaining a Certificate of Appointment of Estate Trustee (COA), the goal of estate planning has been to avoid probate where possible and arrange for the transfer of assets outside the estate. Although this practice may result in “small” estates in some cases, this is a side effect of what is primarily a tax avoidance strategy.
The estate administration tax remains highly controversial in Ontario. One significant challenge for this project will be to maintain a distinction between the tax-related reasons for avoiding probate and the LCO’s focus on simplifying the probate process for the benefit of true small estates. Of course, these issues overlap since payment of the estate administration tax is a cost of obtaining probate for small estates just as it is for larger estates. But the estate administration tax is already designed to be proportionate to the value of the estate and, therefore, is less of a focus for our purposes than the costs associated with the complexity of the probate process, including the need for legal assistance.
It will also be necessary to consider the tax implications of the LCO’s eventual recommendations. For example, a proposal to eliminate probate for small estates would obviously have some impact on government revenues.
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