Outline of Steps in the Administration of the Estate
The following is a summary explanation of matters involved in the administration of an Estate:
The administration of an Estate involves the following basic functions:
1. Establishing the legal representatives of the Estate. If the deceased has left a Will, the Will normally appoints one or more Trustees as the legal representatives of the Estate. If there is not a Will and formal appointment of a legal representative is required, a Court Application is required to designate the Trustee. There are ground rules to guide in the appropriate selection of Estate Trustees where the deceased has not done so by a Will.
2. Gathering in the assets of the Estate.
3. Discharging the liabilities of the Estate including the tax liabilities of the deceased on death and income earned by the Estate prior to distribution.
4a) Distributing the assets of the Estate in accordance with the instructions provided by the deceased by Will or if there is no Will, the rules which govern distribution on intestacy.
4b) If the Will establishes trusts (ie: a bequest of income on capital for life) there may be an ongoing trust management function.
ROLES OF TRUSTEE AND SOLICITOR
The actual administration is divided between the Trustees as the official representative of the Estate and the solicitor, as advisor, to the Estate Trustees.
The responsibilities of the Estate Trustee include ascertaining the beneficiaries, locating, valuing and gathering in the assets of the Estate (including listing the contents of any safety deposit boxes), determining any debts and arranging for payment, ascertaining any tax liability for both the deceased and the Estate ,completing relevant tax returns, maintaining estate accounts, accounting to the satisfaction of the beneficiaries, or obtaining approval of the Estate accounts by audit before the Court, and distributing the assets in accordance with the terms of the Will or if applicable, the rules governing on an intestacy if there is no Will.
The Estate Trustee is legally responsible as the representative of the Estate. This involves legal responsibility to ensure that the functions described above are carried out.
The role of the solicitor is to provide legal advice and guidance to the Estate Trustee and perform the related legal work in connection with the duties described above. It typically includes matters such as formal Application for Probate, if required, and completion of legal work in connection with realization and transfer of assets and formal preparation of the accounts of the Estate. The ultimate decision making authority resides with the Estate Trustee. In practical terms and in order for matters to proceed expeditiously, the solicitors will often deal directly with the banks, trust companies, brokers and/or accountants to obtain the information and may assist in arrangements for accounting and completion of tax returns. For these reasons, the roles of solicitor and Trustee often overlap, In our office, we typically establish and maintain a trust account in the name of the Estate. This generally presents an efficient and organized way to realize and record the accumulation of assets, maintain the information necessary to produce accounting that may ultimately be required and implement and document the distribution.
APPLICATION FOR PROBATE
The Application for Probate is a process which certifies the Trustees legally authorized to act as representatives of the Estate. If there is a Will, it involves authenticating the Will as the governing document and certifying the appointment of the Trustees named in that Will as the legal representatives of the Estate. If there is not a Will, then the probate application certifies the applicants as the legal representatives of the Estate and resolves any conflicts if in fact there are competing applicants.
The formal application for probate in Ontario is an application to the Ontario Superior Court of Justice (formerly Ontario Court - General Division). A government fee (tax) is assessed by the Court based upon the value of the assets in the Estate on death. The probate fee structure is as follows:
1. $5.00 per $1,000.00 for the first $50,000.00
2. $15.00 per $1,000.00 for the remaining Estate value over the first $50,000.00.
There is no need to incur the legal expense associated with the probate application and the probate fees unless the nature of the Estate assets and/or the manner in which title to the Estate assets are held require it. As a practical matter, transferring legal title to real estate held in the name of a deceased generally requires a formal application for probate. Financial institutions will often waive probate for smaller amounts of money. Sometimes financial institutions will accept a probate bond in lieu of a formal probate certificate. The cost of the bond is a function of the value of the asset affected. At times, it may be more efficient to apply for a bond in respect of a specific asset rather than applying for probate in respect of all of the assets of the Estate. Jointly held assets including jointly held real estate do not require probate as title passes to the surviving joint owner. Insurance proceeds bypass the estate and go directly to the beneficiary unless the designated beneficiary is the estate
NOTICE TO CPP & OAS
Typically Notices are required to be sent to OAS and CPP to terminate benefits being paid to the deceased. Delay in sending the notices adds the burden of claims for refunded overpayments and the required adjustments. If there is a surviving spouse there typically would be a survivors CPP benefit as a portion of the deceased's entitlement. The estate is typically also entitled to a CPP death benefit of $2500.00.
Current practice is that the funeral home assists with this paperwork. If not it will have to be followed up independently.
In Ontario, an estate Trustee is entitled to receive compensation for his/her time and trouble expended in connection with the administration of the Estate. Assuming the personal representative chooses to take compensation, the amount allowed is ultimately subject to the approval of the beneficiaries affected or alternatively, the approval of the Court on an application to approve the Estate Accounts. The amount received as Executor's compensation is taxable and accordingly if the Trustee is a substantial residual beneficiary, it often makes sense to waive the compensation and accept the resulting increased legacy. Based on practice, the general guideline for assessing appropriate compensation tends to be based upon on an amount approximately equal to 5% of the value of the Estate or 2.5% of assets realized and 2.5% of assets distributed. If the Estate administration involves the management of Estate assets over a prolonged period of time, there may also be an ongoing care & management fee.
The legal fees for services rendered to the Trustee are a separate charge to the Estate. To the extent, however, that the services of the Estate solicitors extend to matters of Estate administration as distinct from pure legal work that component of legal charges may be considered to be a part of the Trustees' compensation.
As with other legal services, the amount for legal fees incurred by the Estate is primarily a function of the time involved.
Apart from probate fees, there are unique income tax liabilities which would include:
1. A Terminal Tax Return for the deceased for the current year up to the date of death. The capital gains tax rules provide that an individual is deemed to have sold all non-exempt capital assets at their value on the date of death. Any resulting deemed capital gains are then reportable and payable with the Terminal Return. The Terminal Return is due April 30th of
the year following death or within six (6) months of death, which ever is later. An asset which qualifies as the deceased's principal residence is exempt so selling the home does not provoke tax liability.
2. The Estate is responsible to complete a T-3 Return for the periods following death until the income producing assets of the Estate are finally disbursed. There may be further capital gains issues when assets are actually sold following death. The first T3 Return is due not later than ninety (90) days following one year of death (15 months).
The Trustee is liable to ensure that Tax Returns are filed and taxes paid. For that reason, it may be recommended to apply to Revenue Canada for a Certificate of Tax Clearance before completing final distribution of the Estate assets. This protects the Trustee from personal liability for unpaid taxes. The application for a final tax clearance certificate has in recent years become increasingly time consuming and can encourage Revenue Canada to make more rigorous inquiries and reopen matters which for all practical purposes were closed. For these reasons, particularly where the trustees have a substantial interest in the residue of the estate, it can make sense to waive the application for a clearance certificate.