For many types of assets, you must get Court approval, through a process called probate, before you can get your inheritance.
Recently, our firm have completed many small estates probate applications. Many clients did not realize that this option is available to them, and that the small estate application is less complex and less expensive than a normal estate application.
Today, we will address the most frequently asked questions about small estate:
- What type of assets need probate?
Here are the assets that does not require probate:
- Any assets that have a designated beneficiary, such as life insurance, TFSA, RRSP
- Any assets held jointly with another person, such as joint bank account, real estate held as joint tenants
- Corporate assets when you have a corporate minute book and corporate/secondary will
- Assets held in a trust
Other types of assets require probate application before it can be passed down as inheritance.
- What is a Small Estate?
If the total estate assets (that require probate application) is less than $150,000 CAD, then a small estate probate application can be used, which is much cheaper and simpler than a normal estate application.
- Is this process available for estates where there was no will?
Yes, this process can still be used without a will. However, probate cases can become more complicated and expensive when a person dies without a will, which is why we always encourage our clients to prepare their will while their mind is still clear and conscious.
Also, wills should be signed in front of two witnesses, and one witness must swear an affidavit in front of a lawyer. Courts always require physical, original copy of the Will, so ensure you do have one on hand.
- Are the rules for small estate different from normal estate applications?
The main difference is that for small estate applications, you should provide evidence that the estate is indeed $150,000 or less. Documentary proof like bank statements and vehicle appraisals would be very useful in the application.
If in the future Court discovers that the estate is higher than $150,000, then the applicant would need to re-submit the probate application using the normal probate process.
- How long does probate take with a small estate?
While larger estates often take 6 months or more to be approved, small estate can be approved for as fast as 3-4 weeks, depending on the complexity of the application.
- Do I have to pay taxes on a small estate?
Depending on the size of the estate. If the total estate assets are valued at less than $50,000 in total, there is no estate administration taxes.
However, if the estate is between $50,000 and $149,999.00, Court would prefer estate taxes to be paid at the same time as the application is submitted. While the first $50,000 is tax-free, estates higher than $50,000 is subject to a 1.5% probate taxes. So a small estate of $140,000 would need to pay $1350 in taxes.
If the applicant pays this tax at the time of submission, then the probate taxes must come out of their own pocket, and they can be reimbursed later once they can access the estate funds (which is when the Court issues its approval).
At our firm, we can often convince the Court to delay probate taxes payment until the Court approval is issued, so the applicant can access the estate first – and use the money in the estate to pay for the taxes, instead of taking money out of their own pocket.
- What is a bond and do I have to pay for a bond?
A bond is an insurance policy that the Court may require the applicant to purchase when submitting the probate application.
Why? Because the Court may be worried that the applicant would not pay all estate debts, would not pay all taxes, or would wrongfully distribute the estate.
Having a valid Will or hiring an experienced estates firm to do your application are great ways to ask for a bond exemption, so the applicant would not need to spend 2-5% of the estate value and purchase a bond insurance policy.
- I may not need the estate money, should I still apply for a small estate application right away?
Yes, for three reasons:
First, you should deal with estate debts, such as credit cards, mortgages, car leases, right away. Otherwise, the interest penalties will stack up. Also, you should cancel all pre-authorized payments (PAPs) immediately, to avoid those draining the estate funds available.
Second, CRA will expect all individuals to file income taxes every year. In the final year of the deceased’s life, a terminal income tax should be filed, and in doing so, CRA would be informed that this person has passed. Otherwise, CRA may issue fines regarding unfiled income taxes.
Third, ownership to assets should be updated promptly. A person who already passed should not be the registered owner for a real estate property, bank account, or vehicle.
Case Studies
#1 Joe dies with a sole bank account holding $128,000.00 and is the joint owner of a property in Ottawa worth $3,000,000.00. Can he go through probate using the small estate process?
Yes, Joe can go through probate using the small estate process, as the assets subject to probate, the bank account, are worth less than $150,000.
His real estate property, which is owned as joint tenants with his wife, is not subject to probate. So the real estate value is not added to the total probate value.
#2 Joe’s wife, Sun, wants to be the estate trustee. Can she apply without a will?
Estate trustee is the person who gets access to the estate funds and distribute it according to the Will or if there’s no Will, according to legislation.
As Joe’s spouse, Sun is entitled to be appointed as the estate trustee, unless an unusual situation exists, such as a challenge to her competency or if she is a non-resident of Canada.
#3 Does Joe’s wife need to buy probate bond insurance?
No. When there is no will, the spouse would get the first chunk of money (called preferential share), which is currently set at $350,000. Since Joe’s wife would get the entire small estate (which is less than $350,000), there is no risk that she would distribute the estate wrong. There is no other person who would receive the estate, so Joe’s wife is just giving the entire estate to herself.
#4 Sun is unable to apply to be estate trustee, so she asks her son, Qing, to be the estate trustee. Will Qing need to buy a probate bond?
The Court may require Qing to buy a bond insurance, especially if there are other beneficiaries who are minors (under 18), or if Qing lives outside of Canada.
If either of these situations apply, an experienced lawyer may be able to help.
#5 Joe was the sole income earner and Sun doesn’t have enough money to pay probate taxes, does she need to pay taxes to become the estate trustee?
The Court would prefer that the 1.5% probate taxes (applicable to estate above $50,000) be paid when Sun files the probate application.
However, an experienced estate lawyer can try to convince the Court to delay probate taxes payments to after the Court approval is given, and Sun can access the estate funds.
Conclusion
Overall, the small estate application is far simpler and usually more inexpensive to complete than a normal estate application.
Nevertheless, the Court still requires a set of technical court forms and supporting documentations. To avoid errors, rejections, and multiple submissions, it’s best to hire an experienced law firm to complete your small estate probate application.
This blog is meant to provide general legal information, not specific legal advice that may fit your situation. To receive answers on your specific questions, please book a first free consultation here: https://calendly.com/sabrina-668/1stfreeconsult
