Estate Planning

Estate Planning and Probate in London, Ontario: Protecting Your Family’s Wealth

 

When a loved one passes away, the emotional toll is heavy enough without the added stress of navigating the Canada Revenue Agency (“CRA”) and the Ontario court system.  Many families in Southwestern Ontario are shocked to discover that without a proactive estate plan, a massive part of their family’s wealth can be lost to taxes, fees, and months of legal delays.

 

At NG Chartered Professional Accountants, our estate tax team works to ensure your legacy goes to your beneficiaries – not the government.  Whether you are proactively planning your will or acting as an executor for an estate, here is what you need to know about navigating the local probate and tax landscape.

Managing the Parallel Process – The Superior Court and the CRA

When an executor steps in, they are actually dealing with two entirely separate government bodies.  Confusing the provincial court process with the federal tax process can lead to missed deadlines, frozen assets, and severe penalties.

The Ontario Court System (Probate)

 

In Ontario, what most people refer to as “probate” is officially called the Estate Administration Tax (“EAT”).  If the deceased is a resident of Middlesex County, the executor must file an application at the Superior Court of Justice located at 80 Dundas Street in London.

 

  • The first $50,000 of the estate is exempt from probate. Above that, the province levies a tax of $15 for every $1,000 of asset value (a 1.5% tax rate).  This must be paid before the court issues the Certificate of Appointment.

 

  • Receiving the certificate from the London courthouse is not the finish line. Within exactly 180 days of the certificate being issued, the executor must file an Estate Information Return directly with the Ontario Ministry of Finance, formally proving the valuation of every asset in the estate.
The Canada Revenue Agency (Income Taxes)

Parallel to the court process, the executor must settle the deceased’s final tax bill with the CRA.

 

  • The Terminal T1 Return – The CRA treats the deceased as having sold all their assets on the day they died (a “deemed disposition”). This final personal tax return captures all capital gains triggered by death.

 

  • The T3 Trust Return – While the executor is waiting for the court certificate and preparing to distribute the assets, the estate itself may continue to earn income (like rent from a property or dividends from stocks). The estate is treated as a separate taxpayer and must file a T3 Trust Income Tax Return for this ongoing income.

Navigating these two administrative tracks can be overwhelming for an executor, but proactive tax planning can eliminate many of these hurdles entirely.  Consider how these two real-world strategies protect an estate before death occurs.

 

Case Study 1: The Dual Will Strategy (Corporate Shares)

Assume a London doctor had a personal estate worth $500,000 (home and personal bank accounts) and owned 100% of the shares of a private medical corporation valued at $2,000,000.

 

If the owner passed away with a standard, single will, the entire $2.5 million estate would be subject to Ontario probate.  The Estate Administration Tax alone would total $36,750.

 

We can work with the client’s legal counsel to implement a Dual Will Strategy (creating a Primary and a Secondary Will).  We suggest placing the personal assets in the Primary Will (which requires probate) and the private corporate shares in the Secondary Will (which does not require probate under Ontario law).

 

Upon their passing, only the $500,000 of personal assets passed through probate.  The probate tax dropped from $36,750 down to just $6,750 – a direct, immediate savings of $30,000 for the beneficiaries.

Case Study 2: The RRIF Tax Trap and Designated Beneficiaries

Assume a retired client in London passes away with an $800,000 home, $100,000 in cash, and a $600,000 Registered Retirement Income Fund (“RRIF”).  Years ago, they named their adult daughter as the direct designated beneficiary of the RRIF.

 

The family assumes that because the daughter is the named beneficiary, the $600,000 RRIF passes to her completely tax-free and the estate has no liability.

 

While naming a designated beneficiary successfully keeps the $600,000 out of the Ontario Court probate calculation (saving $9,000 in Estate Administration Tax) it does not bypass the CRA.  Unless rolled over to a spouse, the full $600,000 RRIF is added to the deceased’s final Terminal T1 Return.  This pushes the deceased into Ontario’s highest marginal tax bracket (roughly 53.53%).  The estate is suddenly hit with a massive income tax bill of over $300,000, but the $600,000 cash has already bypassed the estate and gone directly to the daughter – leaving the executor without enough liquid cash to pay the CRA.

 

When we find this trapped wealth during proactive estate planning, we sometimes suggest a RRIF Meltdown Strategy.  Instead of deferring the tax until a massive 53.53% hit at death, we recommend drawing down the RRIF over the client’s retirement.

 

By intentionally pulling out more than the minimum each year, we fill up the client’s lower tax brackets.  For example, we might recommend drawing out enough to keep their taxable income in the 20% to 30% brackets, deliberately avoiding the top-tier rates.  We also recommend investing that after-tax cash into a Tax-Free Savings Account or a tax-efficient non-registered portfolio.

 

By smoothing the income out over a decade or more of lower tax rates, we systematically dismantle the RRIF, potentially saving the family tens of thousands of dollars in absolute tax while protecting the final estate value.

Frequently Asked Questions

How much does an estate accountant cost?

 

The cost of an estate tax accountant depends entirely on the complexity of the estate.  Filing a simple final terminal T1 tax return for an individual with basic investments is highly affordable.  However, if the deceased owned private corporations, needed a clearance certificate from the CRA, or triggered complex capital gains upon death, the fees scale with the specialized advisory work required.  At NG Chartered Professional Accountants, we provide transparent, upfront fee estimates based on a review of the estate’s assets.

 

What is the T3 filing deadline in Canada?

 

If a trust or estate generates income after the date of death, the executor must file a T3 Trust Income Tax and Information Return.  For most testamentary estates (specifically Graduated Rate Estates), the T3 filing deadline is exactly 90 days after the trust’s tax year-end.

 

Do beneficiaries pay tax on their inheritance in Canada?

 

No.  Canada does not have a traditional “inheritance tax” on beneficiaries.  The tax burden falls squarely on the estate itself.  The CRA treats the deceased as having sold all their assets on the day they died (a “deemed disposition”), triggering capital gains taxes on the final tax return.  Once the estate pays its income taxes and the provincial probate fees, the remaining cash distributed to the beneficiaries is tax-free.

 

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