Estate planning is much more than just drafting and signing a will. There are ways to minimize estate tax or probate tax that you can discuss with both your lawyer and your financial planner. Here are just a few points about what forms part of the estate and what doesn’t for the purposes of paying probate tax.
Property that is jointly held (i.e. real estate held as joint tenants with right of survivorship, bank accounts or investments that are joint) pass directly to the joint tenant without going through the estate.
Please note that in the case of bank accounts or investments, if the account is joint with anyone other than a spouse, the bank may freeze the funds unless the deceased account holder gives direction in the will as to the disposition of the monies, or the deceased account holder had a trust declaration declaring that the joint account holder is entitled to the money. In these cases, I usually draft a short trust declaration, aside from the will, that lists the accounts in question.
RRSPs, RRIFs, pension monies and life insurance proceeds as long as they are not payable to the estate and have designated beneficiaries, are not subject to probate tax as they pass directly to the beneficiaries and do not go through the estate.
If RRSPs are payable to a spouse, then the monies can be rolled over into the spouse’s RRSPs, without tax consequences. If RRSPs are payable to any beneficiary that is not a spouse of the deceased, the monies will pass directly to that/those beneficiaries, but tax payable will be paid by the estate, not by the RRSP beneficiary. This tax will be calculated on the terminal or final return of the deceased.
Any other property that is not listed above, real estate held in sole ownership, vehicles, solely owned accounts; passes through the estate (i.e. the will) and is subject to probate tax in Ontario as follows:
$5 on every $1,000 for the first $50,000; $15 on every $1,000 after that.