By Lexie Duvar
If you have started planning your estate, you’ve probably heard a lot about probate tax. People often talk about arranging their affairs to “avoid probate,” and many people worry probate tax will drain their savings or leave their loved ones with a hefty tax debt after they die. But, despite all this talk, you’ve probably heard very little information about what probate tax really entails.
In reality, probate tax is not nearly as intimidating as it sounds. Still, knowing what it is and how it works will help you plan your affairs as effectively as possible.
Probate tax is simply a flat fee payable based on the value of your estate, and this fee is set out in the Probate Act.
|
Value of Estate |
Probate Taxes |
|
Up to $10,000 |
$85.60 |
|
$10,000 to $25,000 |
$215.20 |
|
$25,000 to $50,000 |
$358.15 |
|
$50,000 to $100,000 |
$1,002.65 |
|
Greater than $100,000 |
$1,002.65 |
Your “estate” is made up of everything you owned when you die, minus a few exceptions. Exceptions can include real estate that you own jointly with someone else, accounts or investments with a designated beneficiary (like an RRSP), insurance policies with a designated beneficiary, and some jointly-owned bank accounts.
Calculating the value of your estate can be tricky, so it’s a good idea to consult a lawyer or an accountant for advice if you’d like to estimate your probate tax.
Who pays probate tax?
Many people worry that their loved ones will be responsible for paying their probate tax when they die. Fortunately, this is not the case. When you die, all your debts, unpaid taxes (including probate tax), and funeral expenses are paid out of your estate. These amounts are paid first, and then whatever is left over is divided up between your beneficiaries.
This means it is possible for your debts and taxes (including probate tax) to shrink the amount available to give to your beneficiaries. However, your beneficiaries themselves are not responsible for paying these debts. Even if there is not enough money in your estate to cover all these debts, you can rest assured that your loved ones will never be forced to pay your debts or probate tax out of their own pockets.
When is probate tax paid?
Probate tax becomes payable as soon as a grant of probate or administration is issued to your personal representative. This is the first step in the process of dealing with your estate.
Your “personal representative” is the person in charge of managing your estate, and a grant of probate or administration is what gives your personal representative the authority to do this. Your probate tax will have to be paid before the Probate Court will give your personal representative the documents they need to manage your estate.
This means your personal representative will have to estimate the value of your estate at the very start of the probate process. The estimate does not have to be perfect; still, it is always recommended that personal representatives consult a professional for help.
Probate tax is nothing to fear, but it is only one of many things to consider when planning your estate. For help understanding your estate and making the best estate planning decisions for you, contact one of our experienced estate lawyers.
This article is for information only and is not intended to be legal advice. If you have any questions or would like further information, you should consult a lawyer.
