The project was motivated by concerns that probate may be disproportionately expensive for some small estates and that the process may be sufficiently complex that the estate representative may not undertake probate and may abandon the assets or fail to distribute them appropriately. A threshold issue in the project is to assess the extent of this perceived problem. To what extent can we say that estate representatives of small estates in Ontario currently have difficulty accessing the probate system or that difficulties lead them to ignore the probate system? In using the term “small estate”, we refer to estates worth up to $50,000, as explained in the previous chapter. After considering the evidence of a problem probating small estates in Ontario, we consider how particular elements of the current probate process may contribute to this problem.
A. What We Know about the Use of the Probate System
Unfortunately, there is no empirical evidence addressing these questions. Ontario gathers very few statistics on probate applications and there are no statistics at all on the administration of estates outside the probate system. We do know that between 2009 and 2012, there were about 17,000 probate applications with a will and 3,000 applications without a will filed in Ontario annually. We do not know the value of the estates subject to these applications, nor whether the applications were made by individuals or lawyers acting on their behalf. According to a very informal poll of estates court staff throughout Ontario, anywhere from 10 to 40 per cent of probate applications are for estates worth less than $100,000.
There are even fewer statistics on the number of estates that are administered without probate. A rough idea can be inferred by comparing the number of probate applications to the number of deaths in Ontario over the same period. Between 2009 and 2012, there were approximately 90,000 deaths in the province annually. Thus we may surmise that less than one quarter of Ontario estates are being probated. Of those not being probated, many will be large estates using estate planning techniques to avoid the need for probate. There is no way of knowing how many small estates are administered without probate in Ontario. Similarly, there is no way of knowing how many small estates are not administered at all.
There is some empirical evidence available in other jurisdictions. The British Columbia Law Institute (BCLI) reported that in 2004/2005, 44 per cent of British Columbia probate applications were valued at less than $100,000. In 2011, the Law Commission of England and Wales released a report on Intestacy and Family Provision Claims on Death. The Commission found that more than half of all estates are administered without a formal grant and that these are most likely to be intestate. Intestate estates are generally of a lower value than where there is a will.
Although there is no empirical evidence in Ontario confirming that estate representatives of small estates do not access the probate system, the consultations revealed significant anecdotal evidence of a problem. This was particularly the case in speaking with court staff and government representatives. Court staff members are on the front lines dealing with small estates. They described frequent situations where bereaved family members are told by financial institutions or other agencies that they must fill out a form at the court office before the financial institution will release the deceased’s assets. These family members are not aware of the significance of probate and the estate assets are not sufficient to cover the cost of a probate application in any event. Court staff cannot give legal advice but they typically try to explain the nature of estate administration and some suggest that the person try to negotiate with the bank.
Most estates practitioners agreed with the need for small estate reform in Ontario. Although a few practitioners denied that there was any problem, particularly given the dearth of statistics, the majority of practitioners had either experienced disproportionate costs probating small estates themselves or were aware of the problem anecdotally.
There were differing views on the extent of the problems experienced by small estates. Many estate practitioners felt that the current probate system needs only minor reforms to accommodate small estates, such as simplifying the forms. One noted that the problem is not with the procedure itself but whether it is economically feasible to get involved. According to another, “the system is not broken. It lumbers along.”
Other estates practitioners felt that there are problems with the probate system but that these are not unique to small estates. They suggested that the scope of the project was artificially narrow and that the system should be looked at globally:
The current system is not terrible. It has problems but they exist for most estates. It is possible to get probate for small estates on an affordable basis in most cases. Some of the problems that exist are created by the deceased failing to do basic planning. Therefore, I am reluctant to see time and money spent to solve only part of a larger problem when overall reform could benefit a wide range of estates.
The system is laborious and hard to explain; the time involved in obtaining probate is unduly long and the restrictions and demands imposed by banks makes [sic] it almost impossible to avoid. I do not know that it actually protects creditors.
Still other estates practitioners reported particular problems probating small estates and they supported the idea of a new streamlined process directed specifically at small estates.
The LCO also heard stories from individuals who have acted as estate representatives, both of problems obtaining probate for small estates as well as problems administering small estates without probate. However, there were also reports of probate being obtained without much problem.
The extent of the problem probating small estates in Ontario is unclear not only because of the lack of empirical data on the probate system, but also because there is no shared conception of what is a “small estate” in Ontario. Although most stakeholders agreed that some kind of reform is necessary, their suggestions as to the nature and extent of reform varied widely depending on their personal definition of a “small estate”.
B. Evidence of a Systemic Problem with Small Estates and Probate
In addition to the anecdotal evidence of a problem, there is also evidence of systemic challenges with the way that financial and other asset-holding institutions deal with small estates both within and outside the probate system. Institutions, both public and private, rely on probate to satisfy themselves of the estate representative’s legal authority to represent the deceased. Without this stamp of authority, these institutions bear the risk of liability if they pay estate assets to or otherwise deal with the wrong estate representative. Stakeholders from certain institutions explained that they have a legal duty to require probate in these circumstances even where the cost of obtaining probate exceeds the value of the estate.
For example, some financial institution stakeholders expressed concern about managing their risk of liability while being responsive to waiver requests in appropriate circumstances. Other financial institutions saw the problem not so much as risk management as in complying with their legal duty to deal only with properly authorized representatives. A third problem commonly expressed was the unpredictability and client dissatisfaction caused by inconsistent waiver policies among different financial institutions and even within the same institution.
The Canada Revenue Agency (CRA) is a particular example of an institution that is legally obliged to require probate of estates in certain circumstances. The estate representative is required to file the deceased’s final tax return with the CRA. The CRA is required under section 241(1) of the Income Tax Act to deal only with the legally authorized representative of a deceased taxpayer. Therefore, the CRA views probate as a legal requirement rather than a matter of cost/benefit analysis, particularly in the case of intestacies. However, the CRA will exercise discretion to waive probate in limited cases where there is evidence of undue hardship.
There are also other government agencies with similar ambiguous situations to address. For example, under section 515(2)(d) of the Criminal Code, an accused may post cash bail personally. Typically this amount is not more than $5,000. Once the case is concluded, so long as there is no forfeiture order, the cash is returned. Where the accused has died in the interim, family members may claim the money instead. However, it is not clear what evidence should be required by government officials in order to establish that the claimant is legally entitled to receive the money. As of yet, no rules have been developed to address this issue.
Evidence of a systemic problem is particularly acute for administrators of pension plans attempting to pay out death benefits where the beneficiary is the employee’s estate. The pension plan administrator has a statutory duty under section 45 of the Pension Benefits Act to require from the person entitled to a benefit the information necessary to calculate and pay the benefit. So long as the administrator requires this information, he or she may rely on it in determining who is legally entitled to receive the benefit. However, the administrator will not be discharged where there is actual notice that the person is not entitled to the payment or where there is “an inaccuracy in or impropriety with respect to the information provided”. Therefore, administrators will generally require probate before paying out death benefits to an estate. Where there is a will, some pension plans have adopted policies to waive probate in the case of benefits worth less than $50,000 for example. However, where there is no will, the claimant has no presumptive authority to act on behalf of the estate and there is nothing an administrator can rely on to indicate that it has met its statutory obligation in section 45.
This can be a problem on an institutional level for pension plans with many small accounts. Estate representatives are often unwilling to apply for probate for these small amounts and instead choose to abandon them. The LCO heard in consultations this happens in a “substantial number” of cases even where the benefit is as much as $2,000 or $3,000. The problem for these estate representatives is not only the cost but also what they see as the aggravation, time, energy and “hassle” of the probate process.
In spite of the absence of empirical data on the extent of the problems experienced by small estates in Ontario’s probate system, it seems clear that a problem exists. There is a problem for individual estate representatives who must pay for a legal process the purpose of which they do not understand, yet the effect of which may be to eat up a substantial portion of their inheritance. The precise nature and extent of this problem depends on how “small estate” is defined. There is also a systemic problem in that probate is the commonly accepted means of establishing legal authority under several statutory regimes, both provincial and federal. Where the practical reality is that there is no money in the estate to pay for probate or to make it worthwhile to do so, this creates gaps in those regimes and leads to uncertainty about who should be entitled to collect estate assets.
C. Particular Probate Requirements that May Pose a Challenge for Small Estates
In order to determine whether a small estates process makes sense for Ontario and, if so, how best to design it, it is necessary to understand the specific difficulties experienced by estate repr