A. The Practical Necessity of Probate in Administering Ontario Estates
Obtaining a Certificate of Appointment of Estate Trustee (COA) is a court-supervised process establishing the authority of an estate representative to administer a deceased’s estate. Where the deceased has left a will naming an executor, that executor is authorized to act by the terms of the will. In this case, obtaining a COA simply confirms that appointment by establishing that the will is valid and that the estate representative is indeed the executor named in the will. On the other hand, where a deceased dies intestate or where there is a will but no named executor, it is the COA itself that conveys to the estate representative the legal authority to administer the deceased’s estate.
It is not mandatory that an estate representative obtain a COA. However, it is practically necessary to do so in most cases depending on the nature of the estate assets. For a financial institution holding the deceased’s assets, a COA is authoritative evidence that it may release the assets to the estate representative without risk of liability. Even where an executor is named in a will, a COA is usually necessary to assure financial institutions that the will is valid and that the testator did not make a later will naming someone else executor. Therefore, financial institutions most often require a COA before they will release these assets.
An estate representative who administers an estate without obtaining a COA takes a significant risk. He or she may be held personally liable to the beneficiaries, creditors or other claimants for any improper payments made out of the estate. This is so even if the payments were made pursuant to the terms of a will which is only later found to be invalid. In contrast, estate trustees with a COA are protected by subsection 47(1) of the Trustee Act which provides that actions taken in good faith remain valid even if the COA is subsequently revoked.
It is also often advisable for an estate representative to obtain a COA in order to trigger certain limitation periods for claims against the estate. For example, under section 61 of the Succession Law Reform Act (SLRA), a dependent of the deceased has six months after the grant of a COA to seek a support order where the deceased has not otherwise made adequate provision for him or her.
B. The Current Process of Applying for Probate
A COA has essentially the same effect whether it is based on a will or an intestacy. In both cases, it confirms the authority of the estate trustee to administer the estate. However, the different purposes of a COA with and without a will (confirming the authority of the executor under the will in one case and making an original appointment in the other case) requires that the court establish different criteria for issuing them. For example, where there is a will, an important purpose of the COA process is to test its validity by considering whether the formal requirements of the SLRA have been met. This reflects the importance placed by our society on the fulfillment of a testator’s wishes.
The applicable rules for obtaining a COA are summarized in Appendix B below. Generally, Rule 74.04 of the Rules of Civil Procedure addresses cases where there is a will. The application form consists of a number of questions about the deceased and the will (designed to establish validity of the will) and a question about the value of the assets in the estate. The applicant must also attach several documents intended to establish the following:
- the validity of the will (the original will and any codicils, an affidavit of execution of the will, or other evidence of validity)
- that beneficiaries, particularly vulnerable beneficiaries, have notice of the application (in some cases this requires notice to the Children’s Lawyer and the Public Guardian and Trustee), and
- the entitlement of the applicant to act as estate trustee (where, for example, the applicant is not named as executor in the will or lives outside the jurisdiction)
Rule 74.05 addresses cases where there is no will. This application form consists of questions designed to establish that the applicant is legally entitled to administer the estate and includes questions about the search for a will, the persons entitled to share in the estate and other circumstances affecting the applicant’s entitlement to be estate trustee. It also requires a valuation of the estate. The applicant must attach documents establishing that:
- beneficiaries, particularly vulnerable beneficiaries, have notice of the application
- beneficiaries entitled to a majority of the value of the assets consent to the appointment of the applicant as estate trustee
- any person with prior entitlement to administer the estate has renounced that right, and
- the applicant has posted security in the form of an administration bond in the amount of two times the value of the estate.
Both application forms (with and without a will) require that the applicant swear an oath attesting to the truth of the contents and undertaking to faithfully administer the estate according to law.
In addition to the application materials, the estate representative must pay a deposit equal to the estate administration tax owing under the Estate Administration Tax Act. The amount of estate administration tax (or “probate fees” as it is also called) is calculated as a percentage of the estate’s value. Estates valued at less than $1,000 are exempt from the tax. Estates valued at more than $1,000 must pay as follows:
- $5 for each $1,000, or part thereof, of the first $50,000 of the value of the estate, and
- $15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000.
For example, an estate worth $50,000 must pay $250 and an estate worth $100,000 pays $1,000.
Once the application materials are received and the deposit paid, a COA may be issued by the Registrar or, if there are deficiencies in the information submitted, the Registrar may send it back to the applicant to be corrected and resubmitted. If the application is not complete or there is some doubt as to the information contained in the application, the Registrar will refer the application to a judge.
After the COA has been issued, the estate trustee proceeds to gather in the assets, identify creditors, pay debts and taxes and distribute the remainder to the beneficiaries as dictated by the terms of the will or by succession law in the case of an intestacy. Unless a dispute arises, this often takes place without any further involvement of the court.
Currently, there is no specialized small estate process in Ontario. The only estates legislation specifically addressing small estates is the Estates Administration Tax Act which provides that estates valued at less than $1,000 are exempt from the tax. However, even these very small estates must go through the full application process in order to receive a COA.
C. The Cost of Obtaining Probate
The cost of obtaining probate will include the cost of compiling the material necessary for a successful probate application as well as the estate administration tax payable. This project is primarily concerned with the application costs which are not proportionate to the value of the estate in the same way that estate administration tax is.
Application costs may vary widely depending on the complexity of the estate among other factors. Cost is influenced by whether or not there is a will, the number and location of beneficiaries, whether there are minor or incapable beneficiaries, the likelihood of a family dispute, the type of assets in the estate and whether or not there are creditors to be paid. The cost may also depend on the local availability and cost of legal services and the local estate registry’s practice in scrutinizing applications.
There is anecdotal evidence that Ontarians typically hire a lawyer to prepare and file the application materials to obtain probate. To the extent that this is so, most application costs will be in the form of legal fees. Legal fees may be calculated as a flat rate, an hourly rate or some combination of these. The Law Commission of Ontario (LCO) has heard of cost estimates for probate applications ranging from less than $1,000 up to $30,000 (for estates ranging in value and complexity). During this consultation process, the LCO hopes to hear from many more Ontarians about their experiences probating estates, including whether they felt it necessary to hire a lawyer and how much it cost in total.
One factor that does not necessarily affect application costs is the value of the estate. Probating a small estate may cost as much as or more than a much larger estate depending on the above factors.
For example, an estate worth $300,000 may consist of a home, a pension and two bank accounts. The testator has left a will appointing her adult child as executor and sole beneficiary. Although it would likely be necessary to obtain probate in these circumstances, the cost of doing so should be relatively low. There is no need to track down other beneficiaries and the assets are standard and should not be difficult to value. A reasonable lawyer’s fee plus estate administration tax of $4,000 still leaves the beneficiary with a significant inheritance.
In contrast, consider an estate worth $60,000. The testator has left a will appointing one of his adult siblings as executor and listing his parents and siblings as beneficiaries. It is a holograph will (handwritten) which raises questions about its validity. There is no affidavit of execution so that the executor must find someone to confirm the testator’s handwriting. The registry office rejects the probate application several times for this reason. In addition, the testator was an independent contractor and the estate assets include several small accounts. Poor record keeping makes it difficult to locate these assets and value them. In these circumstances, the legal expense necessary to successfully probate this estate may chew up a large proportion of it. Depending on the number of beneficiaries entitled to a share of the remainder, the amount received by any one beneficiary may be seem disproportionately low relative to the size of the estate and the cost of probating it.
In this kind of situation, where probate is costly compared to the value of the estate, the decision to seek probate involves some form of cost/benefit analysis. Other expenses related to administering the estate, such as executor fees, will also be factored in. There is a concern that, in these circumstances, estate representatives may administer the estate without the protection of probate or that they may choose not to administer the estate at all.
There is also a slightly different situation where obtaining probate will not be financially feasible. This is where the estate is so small that there is really nothing to administer but probate is required for some legal purpose like filing the deceased’s final tax return. In this situation, there is no cost/benefit analysis but simply a legal obligation that may need to be personally funded by the estate representative. For example, the LCO heard about a parent whose adult child died without a will. Since there were no assets in the estate, the parent did not apply for probate. Later, a very small pension was discovered with the estate listed as beneficiary. This required the parent to file a tax return and the Canada Revenue Agency required probate as proof of the parent’s authority. Since the parent lived outside Ontario, obtaining probate was complicated and would involve a court application. The value of the pension was nowhere near enough to fund such an application.
There are endless permutations and combinations of circumstances that may complicate a probate application and drive up costs. Probate might also lead to increased administration costs since administration will take place under the scrutiny of the beneficiaries and, potentially, the court. In any event, the key point is that these potential costs do not necessarily correspond to the value of the estate.
Questions for Feedback:
1. Have you been involved in administering what you consider to be a small estate or estates? Briefly explain your experience.
2. In your opinion, what is the maximum value that an estate can have and still be considered a “small” estate?
3. Do you think that the cost of probating a small estate in Ontario is reasonable relative to its value? If not, what parts of the process are unreasonably costly?
D. Estate Administration by the Ontario Public Guardian & Trustee
Ontario’s Public Guardian and Trustee (PGT) plays two distinct roles in the administration of estates. First, the PGT represents mentally incapable persons having an interest in estates administered by others where they do not have a guardian or attorney with authority to act. Second, the PGT may apply to administer estates where no executor has been named and there is no family member or beneficiary in Ontario willing and able to take on this role.
This second role is intended to be exercised only as a last resort. In order to be appointed estate trustee, the PGT must apply for a COA following essentially the same process as any other applicant. There are no procedural short-cuts except that the PGT is not required to post security. Where there is no will, the PGT, like any other applicant, must obtain the consent of beneficiaries entitled to a majority of the value of the estate’s assets.
At any given time, the PGT has more than 1,400 estates under administration. The PGT has established a policy of seeking probate only for estates with a net value of $10,000 or more.
E. Administering Small Estates without Probate
Although there is no separate small estate process in Ontario, there are a variety of laws and policies that circumvent the probate process in certain circumstances in order to facilitate the transfer of estate assets on death. These vary depending on the institution holding the assets and the type of assets in question. They usually, but not always, require a will naming the estate representative as executor.
1. Assets Held by Financial Institutions
The federal Bank Act allows banks to rely on provincial probate systems resulting in a “grant of probate”, “grant of letters of administration” or “other document of like import” as evidence of authority to receive the deceased’s assets. This provision protects banks from liability if they release assets on the basis of a COA or other court-issued document but it later turns out that the recipient was not legally entitled to the assets after all. It allows banks to rely on a COA as proof of authority. However, it does not require that banks rely on a COA and, in fact, it reserves the right of banks to require other such proof as deemed necessary.
Ontario credit unions are subject to the Credit Unions and Caisses Populaires Act, 1994 which is more flexible than the federal Bank Act. It authorizes credit unions to release assets below a prescribed amount without a COA where a statutory declaration or some other evidence establishes the person’s entitlement to receive the amount. Currently, the prescribed amount is set by regulation at $50,000. This provision effectively sidesteps the COA process for small estates by substituting less rigorous evidentiary requirements proportionate to the lower amounts in issue. However, the LCO heard in preliminary interviews that, in practice, credit unions tend to require probate.
In addition to these legislative provisions, financial institutions have developed internal policies addressing the decision whether or not to require a COA before releasing a client’s assets. There are a myriad of policies for different institutions and different types of assets. For example, the Bank of Canada Business Rules contain a detailed chart listing the documentary evidence required to transfer Canada Savings Bonds in different circumstances. Where there is a will and the savings bonds are part of the estate, the Bank generally requires a COA regardless of the value of the bonds. However, where a spouse is the sole beneficiary under the will, the Bank will release up to $75,000 in bonds on the basis of a certified copy of the will and proof of death. This amount drops to $50,000 in the event that a spouse and children are beneficiaries of the estate. Financial institutions have developed these policies on the basis of their own unique matrix of risk factors. There is no consistent approach.
The decision by financial institutions whether or not to release assets without probate is often viewed as one of risk management. However, this is perhaps overly simplified. Financial institutions have a legal duty to protect the property that their clients entrust to them. According to one financial institution stakeholder, it is not relevant that it makes more sense on a cost/benefit analysis to release small assets rather than undergo the inconvenience of holding them until probate is granted. The law is that the bank must protect the assets and the privacy of the owner by dealing only with a legally authorized representative.
Another practical barrier to administering an estate without probate is the reluctance of financial institutions to open estate accounts without this proof of legal authority. Opening an estate account raises similar legal concerns to the transfer of assets. However, an estate account involves numerous transfers of assets in and out of the account over a period of time and financial institutions may conduct a different risk assessment than is applied to a singular transfer of assets.
2. Assets Controlled by Other Institutions
It is possible to transfer real property without probate in certain circumstances. Under the Land Titles Act, the Director of Titles is authorized to determine the evidence required to establish entitlement to real property on the death of a registered owner. The Director has established a policy of waiving formal probate where a will exists and the property is valued at less than $50,000. Instead of probate, the estate representative must file a copy of the will and death certificate, an affidavit attesting to the value of the property and an agreement to indemnify the Land Titles Assurance Fund from any claims by beneficiaries. There is also a first dealing policy that permits a one-time waiver of the probate requirement for the first transfer of real property after conversion from the Registry system to the Land Titles system. Similar evidentiary requirements are in place. There must be a will as well as an affidavit and agreement to indemnify the Land Titles Assurance Fund.
For real property remaining under the registry system, the Registry Act permits property of any value to be transferred on the basis of the original or notarial copy of the will, proof of the testator’s signature or affidavit of execution and a copy of the death certificate.
The Estates Administration Act provides for the transfer of real estate without probate in some circumstances even where there is no will. After three years, any real property remaining in the estate automatically vests in those beneficially entitled to it.
The Business Corporations Act provides for the transmission of securities on the death of the registered holder without a COA in certain circumstances where the estate representative is able to provide reasonable proof of their right to become the registered holder.
These laws and policies, and the discretion of the individuals implementing them, clearly have a practical impact on the need for an estate representative to incur the cost of obtaining probate in certain cases. Therefore, it is important in this project to consider how these laws and policies interrelate with the probate system in Ontario, particularly as it affects small estates.
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