As estates lawyers, we often find ourselves being the bearer of bad news when it comes to advising estate trustees on whether the deceased’s joint assets are subject to estate administration tax (formerly called, probate tax).
Ontario has one of the highest estate administration tax rates in the country. Ontario’s estate administration tax is calculated at $15 for every $1,000 of the value of the deceased’s estate over $50,000. This translates to an estate administration tax rate of around 1.5%. Fortunately, estates in Ontario valued $50,000 or less do not need to pay estate administration tax.
When calculating estate administration tax, the question becomes which estate assets are subject to this. The Ontario government has provided a list of assets that are either to be included or excluded in the calculation of estate administration tax. That list can be found here.
Generally, joint assets are not subject to estate administration tax. Land, bank accounts, investments and vehicles can all be held jointly. Joint assets are owned by two or more persons with a right of survivorship. This means that on one of the death of the owner, the asset automatically passes to the other surviving owner(s). When this occurs, the joint asset is said to pass outside of the estate, and thereby not trigger estate administration tax.
Sometimes people make some assets joint without intending the right of survivorship apply. This may arise when a parent (while he or she was alive) created a joint asset with an adult child. For example, a mother adds her son’s name on her bank account for convenience, especially as she gets older and cannot manage her finances as easily as she once had. When this occurs, there is a rebuttable presumption that the adult child (in this case, the son) holds the bank account in trust for his mother’s estate. Put simply, the bank account is not a “true” joint asset that passes outside of the mother’s estate on her death, unless the son can show enough evidence that the mother intended to gift the bank account to the son on her death. Failing to show that the joint asset is a “true” joint asset will result in estate administration tax being payable on the value of the joint asset.
In light of the above, when administering a loved one’s estate, it is imperative that you carefully consider every asset of the deceased, even those that at first glance appear to be a “true” joint asset. Where the deceased person holds joint assets, it is advisable that you speak with a lawyer to determine whether it is a “true” joint asset (and as such, not subject to estate administration tax) or not.
Failing to properly report to the Minister of Finance all of the assets that are subject to estate administration tax exposes you, as the estate trustee, to liability. If there is evidence that you made a misrepresentation that is attributable to neglect, carelessness or wilful default, or committed any fraud in supplying any information regarding an estate or in omitting to disclose any information regarding the estate, then the penalty can be a fine of $1,000 up to a maximum of 2 times the amount of estate administration tax payable by the estate and/or imprisonment for a maximum of 2 years.
All of this to say, those joint assets that you initially thought were excluded from estate administration tax may in fact be taxable, and you should speak to a lawyer to be safe rather than sorry.