III. What is a Small Estate?

III. What is a Small Estate?2017-03-03T18:35:36+00:00

Currently in Ontario, the same probate process applies to all estates regardless of value, although the estate administration tax varies with value. Therefore, there is no legal concept of small estate in Ontario. In this project, the LCO has considered what should be a small estate for the purpose of accessing a simplified procedure, assuming such a process is introduced in Ontario.

There are several factors to take into account here. This chapter first considers the current understanding among members of the estates community as to what constitutes a small estate. Next, the variability of the concept of small estate and the challenges of measuring this concept are discussed. Third, we consider the particular value limit and other eligibility criteria most appropriate for a new small estate procedure in Ontario. We conclude by recommending that any new small estates procedure should be available to estates with a gross value of no more than $50,000, regardless of the type of assets.

 

A.  Current Ideas about the Meaning of “Small Estate”

If there was one statement consistently heard during the consultations, it was that there is no typical small estate for probate purposes. The monetary value of an estate simply does not correspond to its complexity. A $5,000 estate may require probate and a $100,000 estate may not. In consultations, we heard several stories of practitioners probating very small estates for a variety of purposes. For example, one practitioner probated an estate worth $2,000 in order to prevent the risk of an earlier will being recognized.

It is this lack of correspondence between value and complexity that explains why the cost of probating small estates can be disproportionate to their value. The possible complexity of even very small estates caused some stakeholders to argue against the adoption of a small estates procedure with reduced procedural protections. One practitioner noted:

Difficulties in probate applications are not unique to small estates. However, the low value creates a perception of unreasonableness about the need to comply with procedures to protect beneficiaries, creditors, third parties and others with a potential interest in the estate.[42]

On the other hand, although practitioners acknowledged the potential complexities of even small estates, they also noted that many small estates are straightforward and would benefit from a simplified procedure. Most practitioners, as well as court staff, supported the goal of improving access to the probate process for those “simple” small estates.

When asked to set a dollar value defining a small estate, stakeholders expressed a wide range of opinions. Some urban practitioners suggested $100,000 as a meaningful value since they find it easier to justify a probate application to their clients where the estate is worth at least this amount. They reported that clients are less likely to return after an initial meeting with the practitioner where the estate is worth less than about $80,000 to $90,000.[43]

One court staff member suggested $100,000 to correspond with the Simplified Procedure under Rule 76 of the Rules of Civil Procedure.[44] However, other court staff suggested $25,000 as an appropriate value limit for a small estate procedure, noting that this amount would not pose as much of a liability risk as higher amounts would. This amount was also thought to be reasonable because it aligned with the jurisdictional limit for small claims court.

Individual estate representatives also had a variety of opinions as to what constitutes a small estate. These ranged from $5,000 to $1,000,000. The most common value limit mentioned was $100,000. However, several individuals felt that an estate should be worth less than $25,000 to be considered small.[45]

The wide range of opinions as to what is a small estate is evident from the following responses from stakeholders:

  • $1,000
  • minor assets such as a few thousand dollars in the bank or a vehicle or RRSP or similar
  • $10,000
  • $10,000 in the bank and no real estate
  • $25,000 – $30,000
  • $50,000 net (calculating on gross value would push more estates with limited resources into the standard stream)
  • $50,000 without real estate
  • a few thousand dollars or, if there is a life insurance policy, $50,000  to $100,000
  • $75,000
  • $100,000
  • $100,000 with no single asset worth more than $25,000
  • $100,000 without real estate but $50,000 in rural areas of Ontario
  • $500,000 taking into account real estate
  • anything without real estate – monetary value is irrelevant
  • one asset, one beneficiary – monetary value is irrelevant
  • one person who is both executor and sole beneficiary, or a widowed person is the executor and there is one child – monetary value is irrelevant

Clearly, there is no consensus on what currently qualifies as a small estate in Ontario. In addition to the monetary value of the estate, factors such as the type of assets in the estate, the presence of real estate and the number and identity of beneficiaries may also be considered relevant.

Stakeholders also offered several case examples of small estates for which probate was problematic in some way. These ranged widely in terms of monetary value as well as other attributes as is evident from the following examples:

  • The deceased died intestate with a car (jointly-owned with her common law husband) and a bank account of $1,400. The bank told the deceased’s daughter that she must go to a lawyer and be appointed trustee in order to obtain the $1,400.
  • The deceased’s estate consisted primarily of tax free savings accounts worth $33,000. The deceased had not understood that he could designate his wife as beneficiary of the accounts. The bank insisted on probate. The issue was complicated because of the client’s language barriers.
  • A will provided for the testator’s estate to go to his issue “per stirpes” (each branch of the family receives an equal amount and if the heir has predeceased the testator, that share is distributed equally among his or her children). The testator had 9 children but 3 of these predeceased him. Of those 3 deceased children, 2 had their own children. One had 2 children and the other had 5 children.  Of these latter 5 grandchildren, the practitioner was unable to locate 2 of them. In total, there were 13 beneficiaries to locate and particular problems locating 2 of them. This was all for an estate worth approximately $70,000.
  • A testator with an estate worth $60,000 had prepared his own will by filling out a form obtained from the internet. A search for the witnesses to the will came up empty. A banker’s affidavit was filed in place of an affidavit of execution but was rejected by the registry office as insufficient proof of the authenticity of the will. As a result, it was necessary to hire a private investigator for $6,000 to track down the witnesses to the will. One witness was found in England so that it was necessary to have an affidavit sworn in that jurisdiction. In total it ended up costing $30,000 to probate a $60,000 estate.
  • The deceased left a will naming an adult child as executor. The estate was worth approximately $20,000 and was made up of a bank account, the Canada Pension Plan (CPP) death benefit, a small investment account and an entitlement to pension benefits. There were seven or more beneficiaries including minors. The bank refused to release the assets without probate even though the executor had been the deceased’s attorney for property several years before the death. The executor hired a lawyer to obtain probate. Although the executor was unhappy having to pay lawyer’s fees ($2,000), the overall process was described as “easy”. The executor explained, “Because there was very little money left I had no problem with my family.” The executor had no problem with the probate system but was upset with the bank’s refusal to waive probate.[46]

Clearly, there is wide variation in what stakeholders perceive to be a small estate as well as the range of circumstances perceived to be problematic.


B.              Definition of Small Estate for this Project

Since there is no predetermined or commonly understood concept of what is a small estate in Ontario, the definition chosen for the purpose of this project should relate to the primary goal of the project to improve access to probate for small estates while maintaining its legal protections. Therefore, the definition of small estate should target those estates for which cost is likely to be an obstacle to accessing the current system.

Generally speaking, cost tends not to be an obstacle to probating large estates. Where probate is required in order to collect the assets necessary to administer a large estate, the estate representative may object to the cost of probate, perhaps with good reason, but will be resigned to proceed with an application and pay the associated costs out of the estate. However, for smaller estates, the cost of probate may be close to or even exceed the value of the estate so that it is no longer financially worthwhile to probate it. One stakeholder referred to this as the “walkaway” point, that is, the point at which the estate representative and beneficiaries are willing to walk away from the assets rather than proceed with a probate application. This captures the idea of a small estate but it is too narrow for our purposes. Some small estates will be probated even where it is not financially worthwhile to do so. For example, the estate representative may probate and administer the estate out of a sense of duty or loyalty to the deceased. Or probate may be sought in order to verify the validity of the will where there is a risk that a third party will bring a will challenge in the future. Therefore, a small estate for the purpose of this project should also include small estates that are probated but only by incurring disproportionate costs. These will include estates worth probating in strictly monetary terms but leaving so little for the beneficiaries that it is not justifiable on public policy grounds.

The point at which probate costs become an obstacle to accessing probate (whether or not a probate application is pursued) is a relative concept that will vary both with the value of the estate and the cost of probate. It will be different in every estate depending on the nature of the estate, its assets and its beneficiaries, whether or not there is a will, as well as the costs necessary to respond to these and a myriad of other potential factors. This point at which cost becomes an obstacle is also partly subjective. It will depend on the economic or other resources of the estate representative and beneficiaries, as well as their personal value system about finances and frugality. Some estate representatives may choose to apply for probate and administer a small estate where the net value of the estate only exceeds the total cost of probate by a few hundred dollars. As noted above, some estate representatives choose to probate and administer small estates for sentimental or other reasons even where the costs exceed the value of the estate. In contrast, an estate representative may find it easier to walk away from an estate with a net value of hundreds or even thousands of dollars where he or she experiences language, educational or other barriers to accessing the probate system.

Some assistance in defining the point at which cost becomes an obstacle to access is found in a recent decision of the Supreme Court of Canada.[47] The Court found that court-imposed hearing fees will be unconstitutional where they effectively deny low income people the right to bring their claim to court. Chief Justice McLachlin held that this denial of rights occurs where hearing fees are so high that they cause undue hardship to the litigant seeking adjudication. The Chief Justice specified that undue hardship may be experienced not only by impoverished litigants but also by litigants who must sacrifice reasonable expenses in order to bring a claim.[48]

There are two important distinctions between the court-imposed hearing fees considered in the Trial Lawyers decision and the issues in this project. First, the cost of probate is not a publically levied fee like the hearing fees considered in that case (although estate administration tax is one element of probate costs). Second, the probate system does not engage the same rule of law concerns as does access to civil litigation. Nevertheless, the court’s reasoning does support the idea that probate costs may be considered an obstacle to accessing the system even where they do not exceed the value of the estate but are disproportionate to its value, and even where the estate representative decides to probate the estate in spite of disproportionate costs.

Therefore, a small estates process, if it is to be effective, will target those estates for which the cost of probate often represents a disincentive in accessing probate,

  • whether or not the costs actually exceed the value of the estate,
  • whether or not the estate representative decides to probate the estate in spite of disproportionate costs, and
  • without regard for the personal wealth of the estate representative and beneficiaries.

Given the inability to determine the point at which costs impede access precisely, the value limit for a small estates procedure should err on the side of inclusion.

In addition to this conceptual definition of small estate, there are other factors to take into consideration in establishing a specific value limit for a possible small estates process.  These are discussed next.


C.    Establishing the Value Limit for a Small Estates Process

Although it is clear that there is no commonly agreed upon value limit for defining a small estate in Ontario, the LCO’s goal in this project is to further public policy goals rather than merely reflect public opinion. Our proposed monetary value limit of $50,000 has been chosen as the best means of balancing the goals of promoting accessibility to probate and preserving the legal protections of the system.


1.     Defining Small Estate in Relation to Monetary Value

As discussed in the Consultation Paper, the LCO has determined that a small estate should be defined in relation to its monetary value rather than other factors such as its relative simplicity.[49] The LCO’s project is motivated by a concern for estate representatives and beneficiaries who must pay disproportionate costs in order to access the benefits of the probate system. Looking at the monetary value of the estate in relation to the costs of probate is the best way to approximate the hardship that estate representatives may experience in accessing probate (or in choosing not to access probate). Monetary value as an eligibility criterion also provides a clear cut-off which is important in designing a small estates procedure that is easy to navigate, and thereby less costly to use.

This approach is in contrast to that taken in British Columbia in its comprehensive overhaul of B.C.’s succession law resulting in new legislation, the Wills Estates and Succession Act (WESA).[50] The B.C. government rejected the idea of a procedure for “small estates” but chose, instead, to implement a simplified process for probating “simple estates”.

Earlier in the B.C. reform process, the British Columbia Law Institute (BCLI) had prepared an Interim Report on the Summary Administration of Small Estates, in which it recommended the adoption of a small estates procedure available to estates valued at less than $50,000 with no real property, both where there is a will and in an intestacy.[51] However, the Ministry ultimately decided against implementing this for several reasons.[52] Apparently, in designing the forms, the small estate form was only slightly shorter than the usual form. This is unsurprising. The information that BCLI felt should be included in the small estates declaration was, in some respects, just as detailed as that required by Ontario’s current probate process. The B.C. government was not comfortable simplifying the process sufficiently that it would have made it appreciably easier to use. It found a balance between accessibility and protection closer to the protection end of the spectrum. There was also concern that banks would rely on the $50,000 value limit to require probate in cases where they would otherwise waive probate.[53]

Small estates procedures in other jurisdictions have tended to define small estate in relation to “bright line” monetary value limits which apply whether or not the estate involves a will.[54] For example, Manitoba has a court-based small estates procedure that is available to estates with a total value of $10,000 consisting of either personal or real property.[55] Saskatchewan has a similar procedure but it is available to estates worth up to $25,000 and containing exclusively personal property.[56] The Northwest Territories is currently considering the implementation of a small estates procedure in that province which would be available to estates having a net value of less than $35,000.[57] The Northwest Territories’ draft form suggests that the provision would apply to estates containing only personal property, although this is not yet clear.[58]

Small estate procedures are also in place throughout the United States and are included in the Uniform Probate Code.[59] These similarly define small estate in relation to a monetary value limit which ranges in different states from US$10,000 to US$275,000. Most common are value limits of US$100,000 or limits around the US$50,000 mark.[60]

Australia has several forms of small estates procedure in place and has recently engaged in a number of reform projects in this area.[61] A value limit of AU$100,000 (at time of writing roughly equivalent to CAN$95,000) has been most popular here.

Of course, there are several possible obstacles to assessing the true value of a small estate. The value of certain assets may not be clear or their value may change over time. It may be that only an estimated value of the estate is available at the time of the probate application with the valuation being finalized only after probate is granted. Similarly, new assets or additional liabilities against the estate may be discovered later on. Future legal claims against the estate may also affect its value.

Another challenge is to discourage testators and estate planners from artificially structuring larger estates so as to fall within the value limit. One way of dealing with this tendency is to keep the value limit low enough that only genuinely small estates are likely to be able to fit within it.

Under Ontario’s probate process, a Certificate of Appointment of Estate Trustee (COA) operates as a grant of authority over all estate assets whatever their value and whenever discovered. Traditionally it was the practice that, six months after a COA is granted, court staff would follow up on COAs granted on the basis of estimated valuations in order to confirm those valuations. However, there was no way for court staff to know if new assets had been discovered in the meantime.[62] This practice will change now that estate representatives must file Estate Information Returns with the Ministry of Finance directly.[63] Although under the current probate system, valuation issues may have consequences for the administration of the estate and the amount of estate administration tax payable, they do not affect the legitimacy of the estate trustee’s authority.

In contrast, for small estates procedures based on a monetary value limit, valuation issues may well affect the legitimacy of the estate representative’s authority. For example, an estate representative might apply to administer a $40,000 estate under a small estate procedure based on a $50,000 value limit. Once authorized, if another $20,000 asset is later discovered, then the total value of the estate will exceed the small estates procedure’s value limit. In these circumstances, the estate representative’s authority may be brought into question.

Several reform projects in Australia have addressed this concern for subsequent increases to the valuation of small estates. They provide for a monetary value limit (AU$100,000) but with a safety net provision requiring a formal grant if the estate is later discovered to exceed the value limit by 120 per cent or 150 per cent.[64] In other jurisdictions, the difficulty of valuing small estates at the probate stage has been addressed by limiting the estate representative’s authority to the assets declared in the small estate application procedure.[65] If additional assets are discovered thereafter, the estate representative must re-apply for authority to administer those assets.

There is also the issue of whether the gross value or net value of an estate should be used in determining eligibility for a small estate procedure. Both these measures are used in different small estates procedures in other jurisdictions. During consultations, the predominant view was that the gross value of the estate should be used in the interests of keeping a small estates procedure as simple and streamlined as possible. This also prevents the manipulation of large estates in order to fit within the value limit.[66]

A novel approach to the definition of a small estate was suggested by the Office of the Children’s Lawyer (OCL). Approaching the issue from the perspective of minor beneficiaries, the OCL suggested that it was not the value of the estate as a whole that was relevant but, rather, the value of particular beneficial interests in the estate. A small estates process based on total estate value would mean that minor beneficiaries with equal financial interests in different estates would receive different levels of legal protection. This makes sense from the perspective of vulnerable beneficiaries but a small estates program based on the value of beneficial interests would not be practically feasible. In particular, the value of beneficial interests will not always be known at the point that an application for probate is filed. 

 

2.     Other Possible Eligibility Criteria

Any feature of an estate that tends to contribute to its complexity, thereby increasing the costs of probate, is potentially relevant to assessing eligibility for a small estates procedure. However, complicating factors do not necessarily indicate one way or another whether a small estate should be eligible for a small estates process. From one point of view, greater complexity means increased barriers to accessing probate so that the estate should be eligible for a small estates procedure in order to ensure that the estate is administered. From another point of view, greater complexity means greater potential for fraud or improper administration so that the estate should be not be eligible for a small estates procedure but should be subject to the protections of the full probate process.

For example, the absence of a will (intestacy) tends to increase the complexity and cost of probate.[67] During consultations, court staff reported more problems with applications by small estates involving intestacies. Even with intestacies valued as low as $5,000 or $10,000, financial institutions will send family members to the courthouse to get the “paperwork” before they will release the assets. In many cases, these family members have very little understanding of the significance of probate and the estate is clearly too small to warrant it. So these estates might receive the legal protection of probate appropriate for the degree of complexity involved in administering them, but at an entirely disproportionate cost. In some circumstances, complexity arguably weighs in favour of eligibility for a small estates procedure in spite of the loss of legal protection that entails.

Most jurisdictions with the exception of a few such as New Jersey and Louisiana, do not distinguish between testacies and intestacies in their small estate procedures.[68] It may be that, as with many of the elements of small estates, there are too many possible variations to generalize about what is the “typical” small estate.

A few jurisdictions also have additional eligibility criteria. Some small estates procedures determine eligibility in part by what kind of property is in the estate. For example, Saskatchewan, Iowa and Michigan restrict small estates procedures to estates with personal property only.[69] BCLI’s proposed small estate procedure also would have excluded real estate, likely because B.C.’s Land Title Act expressly requires probate for transmission of real property after the owner’s death.[70] Ontario’s Land Titles Act does not make this a legislative requirement although probate is required as a matter of policy.[71]

Some jurisdictions have two value limits which apply depending on the identity of the beneficiaries. For example, Maryland has a small estates procedure for estates worth less than $50,000 but this value limit increases to $100,000 where the spouse is the sole beneficiary.[72]

All these considerations demonstrate the complexity around the concept “small estate” and the various factors in addition to monetary value that might be considered relevant to eligibility for a small estates process.


3.     The Value Limit for a Small Estates Process: The Conclusion

Although the question of eligibility for a small estates process has been answered by highly varying amounts and other criteria, a small estates process itself must be simple and easy to use in order to be successful. The above discussion demonstrates that there is no logical array of eligibility criteria that will neatly capture that category of estates for which access to probate is unduly compromised. Value is relative and other factors such as the type of assets and the number and identity of the beneficiaries may impact the cost of probating the estate. In these circumstances, the LCO concludes that a bright line monetary eligibility limit for a small estates process best balances the goals of accessibility and legal protection.

A more challenging issue is what monetary value limit makes most sense in the Ontario context. The focus of this project on accessibility leads us to conclude that the value limit should be a modest number encompassing those estates for which access to probate really is in danger but excluding larger estates for which a small estates process would be primarily a convenience.

For this reason, we have concluded that the relatively large monetary limits of some U.S. small estates procedures are not appropriate for the design of an Ontario small estates procedure.[73] Traditionally, probate in the U.S. requires a court hearing and can be a costly procedure compared to Ontario standards.[74] Where costs are higher, it follows that they will pose an obstacle for higher value estates.

The LCO has concluded that a value limit of $50,000, being the gross value of the estate at the time of the deceased’s death, should achieve the best balance between accessibility and legal protection for the greatest number of Ontario estates. The figure of $50,000 was chosen for several reasons. First, considering that the cost of hiring a lawyer to obtain probate is typically between $1,000 and $5,000, a $50,000 value limit should be ample to capture almost all Ontario estates for which cost poses an obstacle to accessing probate while also allowing for inflation.

Second, a $50,000 value limit should be low enough to discourage large estates from using estate planning strategies to fit within the small estates process. In most cases, the legal costs involved in restructuring a large estate to fit within a $50,000 value limit would likely exceed the potential savings.

Third, a $50,000 limit would capture most vehicle transfers in Ontario. Motor vehicles are assets that are typical of small estates. A $50,000 limit would as a practical matter also exclude almost all real estate in Ontario. Real estate is not usually typical of small estates and its transfer involves additional procedures under Ontario’s Electronic Land Registration System (E-LRS) which will typically require legal representation.[75] In any event, the LCO has concluded that real property as part of a small estate should not preclude access to a small estates procedure.

Fourth, a value limit of $50,000 also falls within the range of other analogous value limits in Ontario law. For example, under the Estate Administration Tax Act, the amount of tax payable in relation to estate value jumps from 0.5 per cent to 1.5 per cent where the estate is worth more than $50,000.[76] Also, the Ontario Small Claims Court jurisdiction covers claims up to $25,000. This amount was chosen several years ago in 2010 and it applies to specific claims rather than the total value of someone’s property.[77] Therefore, a value limit of $50,000 for the total value of a small estate is, at least, reasonable in relation to the $25,000 small claims limit.

The LCO has also considered how best to address the risk that a small estate valued at $50,000 or less at the time of applying under a small estates procedure will subsequently be re-evaluated to be worth more than $50,000. We have concluded that a Small Estates Certificate should be limited to the particular assets specified in the application rather than being a general grant in relation to the total estate as is currently the case in Ontario’s probate system. If new assets are discovered in a small estate and the revised value of the estate remains under $50,000, the estate representative would be able to file a summary amendment to the certificate so that his or her authority would expand to encompass the new assets. Only one amendment would be permitted per estate. If new assets are discovered that brings the revised value of the estate over the $50,000 value limit, the estate representative would be required to file under the regular probate stream for a COA. In this latter scenario, actions already taken pursuant to the Small Estates Certificate would remain valid under ss. 47(1) of the Trustee Act.[78]

The LCO believes that this method of dealing with subsequently discovered assets is preferable to the Australian approach of having both a value limit and a second larger value limit as a safety net. Two value limits would complicate what is intended to be a very simple process. Also, a small estates process that does not link a grant of authority to particular assets would provide limited means for enforcing value limits against estate representatives who undervalue the estate.

 

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