Estate Administration Tax and the Spouse's Estate After a Second Death

If you inherited everything from your spouse, it is natural to wonder whether the same assets will be taxed again when you die. Many surviving spouses worry that the home, the investments and the savings will each be hit twice.

This article explains how Ontario's estate administration tax is triggered, what is counted in an estate, and which questions to raise when you plan. It describes general rules only. What you own and how it is held at your death will decide the real answer.

How the tax is triggered each time

Estate administration tax is payable to the Crown in right of Ontario by the estate, immediately upon the issuance of an estate certificate. An estate certificate includes a certificate of appointment of estate trustee, and that includes a small estate certificate.

That wording matters for a second death. The tax is tied to the certificate issued for one person's estate and is calculated on the value of that estate. When your estate trustee later applies for a certificate for your estate, the value that counts is the property that belonged to you at the time of your death.

Whether any particular planning step is available to you depends on the facts, and a lawyer or accountant can confirm it.

What counts in your estate and what does not

The value of the estate is the value disclosed to the court, less the actual value of encumbrances on real property. Ontario's guidance sets out what is included and excluded.

Registered plans are counted where there is no beneficiary designation, for example where they are payable to the estate. With a designated beneficiary they are excluded.

This is why a surviving spouse's situation is different from the first death. After the first death, assets may have moved into your name alone, and anything you now own outright and without a designation is part of what your estate will be measured on.

What the tax could look like on your estate

For applications made on or after January 1, 2020, an estate valued at $50,000 or less is exempt, and above that the tax is $15 for each $1,000, or part of $1,000, of the value that exceeds $50,000. Values are rounded up to the nearest $1,000 before calculating.

Only encumbrances on real property reduce the value. Funeral expenses, lawyer fees, loans, credit card debt and real estate commissions cannot be deducted. The tax is paid by the estate, not personally by the estate trustee.

Planning questions to raise

Because the tax follows what is in your estate at death, the useful conversation is about how assets are held and who they pass to. The answers depend on your family, your accounts and your wishes, and some choices have tax or family-law consequences beyond this article.

• Which assets are held jointly with a right of survivorship, and does that arrangement still suit you?
• Do your RRSP, RRIF or TFSA have a named beneficiary, since those with a designation are excluded from the estate value?
• Do you hold real estate outside Ontario, which is excluded?
• Are any assets payable to your estate by default, which would be included?
• Would your beneficiaries need a certificate at all, given that a financial institution normally requires probate when it holds assets and sets its own requirements?

Be careful with do-it-yourself changes. Adding a child to a bank account or home, for example, can raise questions about control, creditors and fairness among your children. Ask a lawyer before you change how anything is held.

What to do next

• List your assets and note how each is held: sole name, joint, or with a beneficiary named.
• Gather statements and a recent estimate of your home's value.
• Confirm the beneficiary designations on all registered plans and insurance.
• Ask a lawyer or accountant how your holdings would be treated and whether any change makes sense for your family.
• Keep your list somewhere your estate trustee can find it, since records and documented values support the figures later.

Frequently asked questions