Do You Need to Probate a Will for Joint Assets?

I know people are paranoid about probate. If I mention the word probate, some people panic. So let’s have some calm for a minute. I’ll explain some new twists on the subject to save you worry and money.

I had an email exchange with Ben, an accountant. He asked some questions about saving Ontario’s new estate administration tax. Here is a summary of a part of our email exchange. I left out what we’d continue talking about over drinks at our tennis club.

Ben: Hi Ed, hope you are well! Does Land Titles require a probated will before they turn any land over to heirs on a death? If the house is jointly owned with a child, will that avoid it?

Ed: Joint ownership may avoid probate. This is typically how married couples arrange their affairs. But joint ownership may not avoid probate tax if the will otherwise needs to be probated. Let’s get back to your question about real estate in Land Titles.

There is an exemption available in Land Titles for real estate. This applies to property that was converted from the old registry system to Land Titles. If certain conditions are met, probate may not be required.

Ben: Never one answer! 🙂 I would have thought the government would automatically require probate. You’re saying that’s not the case. So in some scenarios, joint ownership will allow the other owner to get full control of real estate with just a death certificate and a copy of the will?

Ed: Consider, for example, if Paul is holding the house as joint owner with his grandmother. He may not have beneficial or true joint ownership with her. The law says Paul is a legal owner on title to the real estate. If he divides the house sale proceeds with the beneficiaries under grandmother’s will, then that’s different. Probate tax is due but there’s no need for probate.

Ben: So when one dies the government can’t require probate from joint owners?

Ed: Joint owners already own 100 % equally. I did not say cut out the lawyers. There is a small loop hole with land converted to Land Titles.

Ben: Ok, so joint ownership gets around probate for real estate. I can’t see the gov’t checking into the beneficial ownership matter, do they?

Ed: That’s still to be determined. Provincial forms now say beneficial ownership must be included in the estate information return (EIR).

This started January 1st, 2015. Ontario wants estate tax on that.  We have to warn executors not to lie, steal or cheat. They need fair market appraisals of real estate and to include beneficial interests.

The province has four years to catch them. The legislation now calls for fines and jail.

Read more about the EIR.

Ben:  Wow! What about joint bank accounts?  Just as many folks using this technique to avoid probate?

Ed:  With real estate, they can audit this easily, but the same beneficial ownership argument applies to joint bank accounts.

Ben:  I know, but how do they track/catch people with a joint bank account?  The provincial tax authorities never see the transaction — they don’t know what they are missing.

Ed: They can audit everything now for provincial estate tax. They have all the investigative powers of the Retail Sales Tax Act. All they need to do is to ask the estate trustee to comply. How did you distribute the $2 million investment account that you jointly owned with grandmother? If the person says “among my siblings like in the will,” they are out $30K plus penalties and fines for probate taxes.

Warning to Estate Trustees

So I have to warn them and ask:  How will you handle the joint account?

If they lie to me, ok, I don’t know.

If they say none of your business, I must warn them about jail.

If they say they are holding it in trust, they are at risk to pay the $30K.

It may be a civil fraud and I cannot assist them.

There are no Ontario probate court decisions yet to clarify the rules. But I am sure the government will get rulings in their favour.

If audited, estate trustees may need to prove they are owners and not mere trustees of joint accounts. Then they will deal with a reassessment or appeal for the tax penalties.

Since the Supreme Court decision in Pecore, the law presumes if you have a gratuitous gift/transfer it means you are not a beneficial owner. The person who receives the gift must prove it is their money.

Ben:  But for bank accounts, no way to find out — assuming everything is joint and no lawyer is involved?

Ed: Except the estate trustee is on the hook for the risk.  For land, as I said, there could be Land Titles if they wanted to start to track the changes to legal ownership.

Ben: If you make all joint and designated you do not need probate. Who polices this? If I have a joint account at the bank and one of us dies, how does the province ever find out?

Ed: The questions only get asked when you file for probate. Or by relatives who claim you are not the beneficial owner of mom’s house. You owe me half, or $500K, from the investment account. I am going to sue you.

Ben: Yes, same for real estate then?  So the joint ownership game that people play to avoid probate tax will continue. Nothing has really changed?

Ed: Au contraire.

Every lawyer knows a joint account — other than between spouses in a first marriage — is a litigation goldmine. It is called the gift that keeps on giving to lawyers who sue. You have to survive a three-year battle to keep the dough.

Ben: I’m not talking about litigious families. If a bank account is joint with both kids and they get along, there won’t be arguments later. They each get half, same as the will, but are able to skip and avoid probate.

Learn more in my post 2015 Ontario Probate Tax Rules on Real Estate.

About Edward Olkovich

I am a Toronto estate lawyer and Certified Specialist in Estates and Trusts Law. I edit Carswell’s legal guide Compensation and Duties of Estate Trustees, Guardians and Attorneys. I have handled estate disputes and probate problems since 1978. © 2015