Comprehensive Guide to Estate Sales and Avoiding Probate in Ontario
Overview:
This guide delves into estate sales and probate laws in Ontario, offering valuable information and tips on how to circumvent the probate process when possible. We cover the basics, answer common questions, and provide guidance on what steps to take and what pitfalls to avoid. So, let's dive right in.
Understanding Estate Sales:
In simple terms, an estate sale involves the selling of property belonging to a deceased individual. The term "estate" encompasses not only real estate but also personal property such as furniture, appliances, and artwork. Although death is the primary reason for an estate sale, other circumstances include bankruptcy, retirement, divorce, relocation, or downsizing.
Defining a Trustee and Their Role:
As stated by Ontario.ca, estate trustees are responsible for executing the wishes of the deceased person as stipulated in their will (if one exists) and administering the estate according to the law. Essentially, a trustee is an individual appointed by the deceased to carry out the provisions of their will. A will can name multiple trustees, who can be a spouse, child, friend, or lawyer. Sometimes referred to as an executor, a trustee's role may differ from that of an executor, who, for instance, is responsible for arranging the deceased's funeral.
What Occurs When Someone Dies Without a Will?
When someone dies without a will, the court assigns an estate administrator, whose fees typically range from 3-7% of the estate's overall value. To make matters easier for surviving loved ones, it is strongly advised to create a will and appoint a trustee.
Probate Explained:
Probate is a legal procedure that validates a will and confirms the executor's authority to manage and implement its provisions. The more complex a will, the higher the likelihood of requiring probate. Probate becomes necessary under certain circumstances, such as when someone dies without a will, the will doesn't name a trustee, disputes arise concerning the will or trustee's validity, or a financial institution requests probate to release the deceased's assets.
Duration of the Probate Process:
Probate can be a lengthy process. Trustees have 30 days after the testator's death to apply for probate, which entails submitting an original copy of the will, a copy of the death certificate, a list of beneficiaries named in the will, and an inventory of the deceased's assets and their value. The processing time depends on the location; for instance, it can take 4-6 months in Toronto. Applications must be filed at the court nearest to the deceased's residence, which means the process cannot be expedited by going to another court. Once the probate application is approved, the trustee has one year to administer the estate. Overall, the entire process from probate to executing the will's terms can take up to a year and a half.
Probate Expenses:
In addition to consuming a significant amount of time, probate can be costly. In Ontario, probate fees are also referred to as Estate Administration Tax (EAT). Estates worth $50,000 or less are not subject to EAT. For estates over $50,000, the EAT is $15 for every $1,000. To calculate the tax for a $500,000 estate, follow these steps:
$0 for the first $50,000 of the estate
$15 per $1,000 for the remaining $450,000 of the estate
450,000 ÷ 1,000 = 450
450 x 15 = 6,750
The total EAT for a $500,000 estate would amount to $6,750. For more info use Ontario's official Estate Administration Tax calculator to make the process easier.
Additional Probate Costs:
Before applying for probate, trustees often consult with a lawyer specializing in probate law. Probate lawyer fees vary based on the estate's size and complexity. For instance, a large estate with multiple properties in different countries will be more expensive than a small estate with a single residence in Toronto. Most probate lawyers charge an hourly rate ranging from $150 to $500, while others charge a flat fee or take a percentage of the estate's value. Apart from legal fees, there are application fees, certificate fees, and professional fees (e.g., hiring a property appraiser). According to Sunlife, probate can cost up to 3-7% of the estate's value, making it particularly expensive when property is involved.
Reasons and Methods for Avoiding Probate:
Probate can be quite costly, especially with the significant increase in Canadian real estate prices over the past two decades. For instance, the probate fee for an average Toronto home is $15,630, not including other assets like stocks, mutual funds, or collectibles. Probate is also not mandatory in Ontario, giving individuals another reason to avoid it. Let's explore some ways to bypass probate.
Create a Will with Specific Provisions:
First, create a will and appoint a trustee. Then, add specific provisions to assign particular assets to designated beneficiaries. As stated by Toronto-based LD Law, adding provisions to your will allows assets to be transferred without probate. For example, the will can specify that the family home goes to the oldest child, enabling beneficiaries to avoid probate and save time and money.
Establish a Living Trust:
A living trust is a legal document wherein a person (the settlor) transfers their assets to a trustee while they are alive. Assets can include cash, stocks, bonds, property, and more. A living trust offers two main benefits: privacy (since a will becomes a public document after probate) and the ability to pass assets to beneficiaries without undergoing probate.
Co-Own Property:
Probate can be avoided through joint or co-ownership of property. There are two types of co-ownership: tenancy in common and joint tenancy. Tenancy in common is often used by common-law spouses, couples in second marriages, or family members or friends who co-own real estate. In this arrangement, tenants in common own different percentages or shares of a property, such as 50%, 35%, and 15%. When one tenant in common dies, their share becomes part of their estate. Alternatively, joint tenancy with the right of survivorship is typically used by married couples to co-own real estate, whereby both spouses simultaneously own 100% of a property. When one joint tenant dies, the surviving tenant inherits the entire property, bypassing the need for probate.
In Conclusion:
While probate may be necessary in some cases, it can be avoided in others. Homeowners can create a living trust or sign a joint tenancy agreement to transfer property without undergoing probate, saving their spouse or beneficiaries time and money and making it easier to sell the home.
If you have any questions about probate, feel free to reach out for answers.
Sami Chowdhury
Broker
RE/MAX Realtron Realty Inc., Brokerage
885 Progress Avenue, Suite 209, Toronto, Ontario, M1H 3G3
Direct: (647) 725-0606 , Office: (416) 289-3333 , Fax: (416) 289-4535
Are you considering purchasing your dream home or looking to invest in a property? Or perhaps you're thinking of selling your current one? Allow me to guide you smoothly through the entire process, from start to finish, ensuring a hassle-free experience. I invite you to reach out for a complimentary, no-obligation consultation. Your journey to success begins with a single conversation!
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