Thursday, December 15, 2016

The (Dreaded) Ontario Estate Information Return

Paul Adam, Wise Law
"What my thankless job managing an estate needs is more expense and paperwork," said no Executor ever.

Nonetheless, the Ontario Estate Information Return has arrived and is here to stay.

Effective January 1, 2015, every Executor or Estate Trustee who obtains a grant of probate (also known in Ontario as a certificate of appointment) must accurately complete a comprehensive 7 page report about the value of all assets of the deceased person on the date of death.

The Information Return is due 90 days after a Certificate of Appointment is issued.

What new work has been created for trustees in light of this exciting new legal requirement?

The Information Form requires the Estate Trustee to accurately disclose information to the government about:
  1. the value of the deceased's property, including real estate, in Ontario, and the value of interests the deceased had in property legally owned by someone else;
  2. the value of the deceased's investments on date of death;
  3. the balance in bank accounts on date of death; 
  4. the value of cars and other vehicles and "vessels" (which include "motorcycles, boats, all-terrain vehicles, bicycles, snowmobiles, etc.");
  5. the value of other assets (the form lists as examples: "business interests, copyrights, patents, trademarks, household contents, art, jewelry, loans receivable, etc.").
This information is utilized to update and verify information previously disclosed in the application for estate administration as to the Estate's value.  Ontario probate fees, now known as estate administration taxes, are paid at the time an application for administration is filed, and are calculated as a percentage of the Estate's value, as disclosed in the Application.

(Current estate administration taxes in Ontario for estates valued over $50,000 are $250 + $15 for each $1,000 or part thereof by which the value of the estate exceeds $50,000)

Additional estate administration taxes - or refunds - may be payable based on the new numbers, once the updated valuation information in the Estate Information Return has been filed.

Ontario Estate Information Return
Ontario Estate Information Return
The Estate Information Return is in its infancy as a legal document, but the Ontario Government has already signaled that the values reported on the Estate Information Return must be backed up by professional valuations. That means Estate Trustees will now need to have a plan (and the money) to produce an objective valuation of estate assets. 

The upside to this is that it may provide an incentive for estate trustees to get organized quickly to appraise and call in all of the assets of the estate earlier in the administration process, which saves time down the road.

The downside is that estate trustees will need even more funds at their disposal to pay the professional fees necessary to deal appropriately with reporting. This will make administering an Estate an even more costly and time-consuming operation, even if there aren't any legal disputes at stake among estate beneficiaries.

If the estate trustee needs to pay for some of the accounting and appraisal fees out of pocket, that trustee will need a few thousand dollars set aside while waiting to be reimbursed out of the Estate's assets. That's a luxury not every trustee will be able to easily afford. 

There are plenty of compelling arguments that fair taxes on inheritance, including Ontario's Estate Administration Tax (the highest in Canada) are important and necessary tools to address the tax-free inter-generational transfer of wealth, which is the main mechanism by which the wealthy stay wealthy

But, it seems that reporting measures like Estate Information Returns will put a big squeeze on small- and medium-sized estates, for which paying extra professional fees is a significant expense.

Conversely, it may not do much to stop large estates from (legally) avoiding high taxes with expensive estate planning and the preparation of complex last wills. Furthermore, instead of using the mechanism of estate taxes to redress income inequality, paperwork like the Estate Information Return may wind up redistributing a lot of hard-earned money from beneficiaries to valuators, accountants and other professionals.

- Paul B. Adam, Toronto

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