Probate Fee is technically called the Estate Administrative Tax (EAT)

Common Strategies to Bypass Probate in Ontario

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Probate in Ontario can be a time-consuming and costly process, as it involves the Superior Court of Justice officially validating a Will and granting authority to an Estate Trustee, incurring Estate Administration Tax (probate fees) on the value of the estate. Fortunately, there are several effective strategies you can use to bypass probate, ensuring a smoother, faster, and often more private transfer of assets to your loved ones.  How to avoid probate fees in Ontario seminar would be a great estate planning seminar for you to consider.

Beneficiary Designations

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This is one of the most straightforward and effective ways to keep assets out of probate.

• How it Works: For certain financial products, you can name a direct beneficiary on the account or policy itself. This includes registered accounts like RRSPs, RRIFs, and TFSAs, as well as life insurance policies and segregated funds.

• Benefit: When you pass away, the funds or proceeds are paid directly to the named beneficiary, bypassing your estate entirely.  This means they are not subject to probate fees, are generally distributed much faster, and the transaction remains private, unlike assets processed through a probated Will, which becomes public record.

• Important Note: For segregated funds, you can often designate a successor annuitant for registered accounts, which allows the contract (with its guarantees) to seamlessly roll over to a surviving spouse without triggering a taxable event at your death.

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Joint Ownership with Right of Survivorship

 

This strategy is commonly used for real estate and bank accounts.

 

• How it Works: When an asset (like a house or a bank account) is owned jointly with another person "with right of survivorship", upon the death of one owner, the asset automatically passes directly to the surviving joint owner. It does not form part of the deceased's estate.

• Benefit: The asset avoids probate altogether, and ownership is transferred quickly and efficiently. This is a very popular strategy for spouses owning a home or joint bank accounts.

• Considerations: While effective for probate avoidance, joint ownership has important legal and tax implications. For instance, adding an adult child as a joint owner can trigger capital gains tax at the time of the transfer, expose the asset to the child's creditors, or lead to family disputes if intentions aren't clearly documented (e.g., the "presumption of resulting trust" in Ontario).  Always seek legal advice before adding a joint owner.

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Using Trusts (Inter Vivos Trusts)

 

Trusts are powerful and versatile tools for estate planning, especially for larger or more complex estates.

 

• How it Works: An "inter vivos trust" (also known as a living trust) is created and funded during your lifetime.  You transfer ownership of assets from your personal name into the name of the trust, managed by a designated trustee for the benefit of your chosen beneficiaries.

• Benefit: Because the assets are legally owned by the trust, not by you personally at the time of your death, they generally bypass probate. This offers privacy, can provide significant control over how and when assets are distributed (even after your death), and can offer some creditor protection.

• Types to Consider: For those 65 and older, Alter Ego Trusts and Joint Partner Trusts are particularly useful in Ontario. These specific trusts allow you to transfer assets into the trust without triggering an immediate capital gains tax, deferring that tax until the death of the last surviving income beneficiary.

• Considerations: Trusts are more complex and costly to set up and maintain than other strategies, often requiring ongoing legal and accounting fees. The benefits must outweigh these costs.

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Multiple Wills

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This strategy is often employed by individuals with private company shares or assets in different jurisdictions.

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• How it Works: In Ontario, it's possible to have two (or more) Wills. A "primary Will" deals with assets that must go through probate (like real estate held solely). A "secondary Will" deals with assets that do not legally require probate (such as shares in a private company or certain personal effects).

• Benefit: By isolating the assets that require probate, you can significantly reduce the overall value of the estate subject to probate fees, as the secondary Will is not submitted to the court for probate. This can result in substantial savings, especially for business owners.

• Considerations: This is a sophisticated strategy that requires careful drafting by an experienced estate lawyer to ensure both Wills are valid and interact correctly without contradictions.

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Strategic Gifting During Lifetime

 

Giving assets away while you're alive reduces the size of your estate.

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• How it Works: You can gift assets (money, property, investments) directly to your intended beneficiaries during your lifetime.

• Benefit: Any assets gifted are no longer part of your estate when you pass away, so they won't be subject to probate fees. This can also allow you to see your loved ones enjoy the gifts.

• Considerations: There are important implications to consider. Once gifted, you lose control over the asset. There could be tax implications for either you or the recipient depending on the asset (e.g., capital gains on appreciated property). It's also crucial to ensure you retain enough assets for your own financial needs throughout your lifetime, especially considering potential long-term care costs.

 

While bypassing probate can offer significant advantages, it's essential to understand that each strategy has its own complexities, potential tax implications, and legal considerations. An effective estate plan often uses a combination of these methods tailored to your specific financial situation, family dynamics, and legacy goals. Consulting with a qualified financial consultant (especially one with CEA and EPC designations), an estate lawyer, and an accountant is crucial to ensure your strategies are implemented correctly and align with all relevant laws across Ontario.

 

First Dealings Exemption in Ontario

 

The First Dealings Exemption in Ontario is a highly technical, yet crucial, provision of land law that allows certain real estate properties to be transferred upon the death of the owner without obtaining a Certificate of Appointment of Estate Trustee.

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Its primary purpose is to bridge a gap in the law created by the province's transition from a paper-based land registry system to a modern, digital one.

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Here is a detailed explanation of what you need to know about this exemption:

 

Foundational Legal Context

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1. The Historical Shift in Land Registration

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The exemption is rooted in the difference between Ontario's two main property registration systems:

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• Registry Act System (The Old System):

  • This was the historical, paper-based system. Under this system, an executor or estate trustee could transfer a deceased owner's real property without a court-issued Certificate of Appointment (probate).

• Land Titles Act System (The New System):

  • This is the modern, electronic system. Under this system, the Land Registry Office (LRO) generally requires an executor to have a Certificate of Appointment of Estate Trustee (probate) to prove their authority before they can transfer title.

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2. The Conversion Process

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Starting in the 1980s and continuing through the early 2000s, the provincial government conducted an administrative conversion of properties from the old Registry system to the new Land Titles system.

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• Properties converted this way were given a specific qualifier on their title: Land Titles Conversion Qualified (LTCQ).

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• The phrase "First Dealings Exemption" essentially means: "If you bought this property while it was under the old Registry rules, you get one final transfer under the Registry rules, even though the title has been converted to the new Land Titles system."

 

Criteria for Qualification (The 4 Key Tests)

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For a property to be eligible for the First Dealings Exemption, the estate must prove that all the following conditions are met:

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1. The Acquisition Test (Acquired under Registry)

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• The deceased owner must have acquired the property (purchased it or been transferred it) when it was still registered under the old Registry Act system.

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2. The Status Test (LTCQ Status)

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• The property's official status on the Land Registry records (the Parcel Register) must be "Land Titles Conversion Qualified" (LTCQ).

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• Disqualification:

  • If the title has been upgraded from LTCQ to "Land Titles Absolute" or "Land Titles Absolute Plus", the exemption is permanently lost. Most condominium units are automatically registered as Land Titles Absolute and are therefore ineligible.

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3. The Dealing Test (No Prior Dealing)

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• The transfer of the property upon the owner's death must be the first "dealing" registered on the title since the property was automatically converted to LTCQ status.

  • What IS a "Dealing" (and Disqualifies the Exemption): Any transaction that transfers the ownership interest of the property. This includes a sale, a gift, or a transfer of title to another person (even a spouse or child).

  • What IS NOT a "Dealing" (and Preserves the Exemption): A registration that does not change ownership interest. This includes registering a mortgage, discharging a mortgage, registering a notice, a lease, or a Survivorship Application (when a joint tenant dies, the property automatically goes to the survivor).

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4. The Will Test (Testate Estate)

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• The deceased must have died with a valid Will (a "testate" estate).

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• Disqualification:

  • If the deceased died intestate (without a Will), probate is required to obtain authority to deal with all estate assets, including the real estate.

 

The Significance and Strategic Use (Avoiding EAT)

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The practical significance of the First Dealings Exemption is twofold:

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1. Dispensing with Probate

 

The LRO will register the transfer of the property to the beneficiaries upon submission of the necessary documents (e.g., Transfer/Deed of Land, death certificate, affidavit by the executor) without requiring the Certificate of Appointment of Estate Trustee.

 

This saves the estate:

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• Time:

  • Avoiding the months-long court process for probate.

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• Cost:

  • Avoiding the legal fees associated with preparing a court application.

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2. Avoiding Estate Administration Tax (EAT) on the Property's Value

 

This is the major financial benefit.

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• The Estate Administration Tax (EAT), or "probate tax," is currently approximately 1.5% of the estate's value over $\$50,000$.

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• If an executor must probate a Will for any reason (e.g., to access a bank account, transfer investments, or deal with a non-qualifying property), the value of all assets governed by that Will must be declared, and EAT must be paid on the total.

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The Multiple Will Strategy

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To avoid paying EAT on the value of the First Dealings property, estate lawyers use a multiple-will structure (or Dual Wills):

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• Primary Will:

  • Governs all assets that require probate to be dealt with (e.g., bank accounts, investments, etc.). This Will is probated, and EAT is paid only on the value of these assets. 

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• Secondary Will:

  • Governs all assets that do not require probate, with the First Dealings property being the most valuable asset. This Will is never submitted for probate, and therefore, the high value of the house is excluded from the EAT calculation, resulting in substantial tax savings.

 

 

Important Limitations and Caveats

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• It is Personal to the Owner:

  • The exemption is tied to the owner who acquired the property under the Registry system. If that owner transfers the property during their lifetime (even to their spouse or child), the exemption is permanently extinguished, as that transfer counts as the "first dealing." The new owner does not "inherit" the exemption.

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• No Tax Savings Without Dual Wills:

  • If the deceased only has one Will and the estate must submit it for probate (even for other assets), the value of the First Dealings property must be included in the EAT calculation. The exemption only allows you to transfer the title without probate; it doesn't automatically exclude the asset from the tax if probate is needed for the same Will.

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• Title Search is Mandatory:

  • Determining eligibility requires a thorough title search by a lawyer to confirm the property's LTCQ status and the entire history of registrations since the conversion date. The final authority on whether the exemption applies rests with the Land Registrar.

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To discuss further or for questions of clarification please contact Mark Albert, CEA, EPC at either: 416-659-6655 or 

markalbertpfs@gmail.com.

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Key Topics Covered On This Page:​

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• Probate Ontario

• Estate Administration Tax (EAT)

• Ontario probate fees

• Certificate of Appointment of Estate Trustee

• Executor (Estate Trustee)

• Validating a Will

• Superior Court of Justice Ontario

• Probate process Ontario

• When is probate needed

• Assets requiring probate

• Real estate probate

• Financial institutions and probate

• Will disputes

• Estate Trustee liability

• Probate avoidance

• Joint ownership with right of survivorship

• Trusts (Inter Vivos Trusts)

• Multiple Wills

• Gifting assets

• Probate timeline

• Estate lawyer Ontario

• Cost of probate Ontario

• Estate inventory

• Application for Estate Information

• Succession Law Reform Act

• Minor beneficiaries probate

• Testamentary trust

• Estate debts and creditors

• Intestacy (dying without a Will)

• Contact Mark Albert CEA EPC to discuss further​

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