Is Estate Administration Tax Owed on Assets Outside Probate in Ontario?

People often hear that some assets "avoid probate" and assume they are free of every cost and claim after a death. In Ontario the picture is more detailed. Whether an asset falls inside or outside the estate depends on how it is held and who is named to receive it.

This article walks through the main categories: insurance, RRSPs and RRIFs, and jointly held property. It also explains where an asset can pass outside the estate and still be counted for other purposes.

How Estate Administration Tax works

When a person dies, their property passes to the estate trustee, who holds it for the people legally entitled to it after the debts are paid. Probate is usually needed where the deceased owned real property or had assets held by a financial institution, although it depends on the type of asset.

No Estate Administration Tax is payable if the estate is worth $50,000 or less. For certificates applied for on or after January 1, 2020, the tax is $15 for every $1,000 (or part thereof) of the estate's value above that amount, with the value rounded up to the nearest thousand.

Debts such as funeral costs, lawyer's fees, credit card debt and lines of credit cannot be deducted from the estate's value for this tax. The exception is an encumbrance on real property, such as a mortgage or lien, which can be deducted from that property's value.

Life insurance with a named beneficiary

Where a beneficiary is designated, the insurance money is not part of the insured's estate and cannot be claimed by the insured's creditors from the time of death. While a designation in favour of the insured's spouse, child, grandchild or parent is in effect, the insured's own rights in the insurance money and the contract are exempt from execution or seizure.

The exception is naming the estate. An insured may designate themselves or their personal representative as the person to whom the money is payable, and then the proceeds are paid into the estate. In that case the protection does not keep them away from the insured's creditors.

RRSPs, RRIFs and other plans

A plan participant, such as an RRSP or RRIF holder, may designate a person to receive the benefit payable on death. A designation made in a will is effective only if it expressly refers to a plan, either generally or specifically. The plan administrator is discharged once it pays the person named in the latest designation, unless it had actual notice of a later designation or a revocation.

Passing outside the estate does not mean passing free of income tax. The fair market value of an RRSP or RRIF at death must generally be included in the deceased's income on the final return. Amounts paid to a surviving spouse or common-law partner can be transferred on a tax-deferred basis.

Jointly held property and accounts

Joint ownership is where people most often expect a simple answer, and where the answer depends on the facts. How a bank treats a joint account, and how the account was set up, can vary, so confirm the details for your situation.

Two points are worth knowing. For dependant support claims only, money payable on death to survivors under a deposit (joint accounts), property held in joint tenancy and life insurance the deceased owned on their own life are treated as part of the net estate. And if a spouse dies owning an interest in the matrimonial home as a joint tenant with someone other than their spouse, the joint tenancy is deemed severed immediately before death, so the deceased's share goes to the estate rather than to the surviving co-owner.

What to do next

• List every asset and note how each is held: sole name, joint, or with a named beneficiary.
• Collect insurance policies and plan statements and check who is designated.
• Ask whether the estate is valued above or below the tax threshold once you know which assets are inside it.
• Speak with a lawyer or accountant about joint accounts, support claims and the final tax return before distributing anything.

Frequently asked questions