Estate and Probate Expenses
Most people have a sense that when we die there are legal processes that must be followed and that they are often complicated, time consuming and expensive. While it is possible, through careful, prudent estate planning, to reduce or eliminate many of these hurdles the following is a brief primer on the true costs (real and intangible) associated with the administration of an estate after death.
The sort of expenses facing an estate are:
a. Funeral expenses;
b. Probate Fees;
c. Executor Fees:
d. Accounting Fees and Taxes; and
e. Legal Fees
What is Probate?
Most people know that they don’t like and that they wish to avoid “probate” but not everyone knows exactly what it is.
Probate is the process whereby a Will is submitted to the court for certification that:
1. it is a valid last Will and Testament;
2. that the executor is to represent the estate; and
3. confirming which assets are under their authority.
There is no law that requires a Will to be probated but assets registered in the name of the deceased alone at the time of death usually require probate before they can be released or transferred to the executor and ultimately the beneficiaries or third party.
All costs associated with the funeral wishes and disposition of remains are expenses of the estate and must be paid from the estate.
In British Columbia any estate that passes through the probate process must pay a Provincial tax called “probate fees”.
The probate fee (payable to the Minister of Finance) is calculated as follows:
$200.00 probate application filing fee, plus
$6 for each $1,000 of estate value in excess of $25,000 up to $50,000; plus
plus $14 for each $1,000 or part of $1,000 of estate value in excess of $50,000; plus
$40.00 for each certified copy of the Grant and Statement of Assets and Liabilities.
When you appoint someone to represent you and your estate after your death (called an “Executor”) they have the right to claim remuneration for the performance of their duties.
Under the Trustee Act of British Columbia executors are allowed the compensation a fee of up to 5% of the gross aggregate value of the estate and a small yearly care and management fee.
Accounting Fees and Estate Taxes:
One of the executor’s principal responsibilities is to ensure that the deceased’s final tax return is filed and all estate taxes paid. It is essential that this be done before distribution to the beneficiaries of the estate as if the assets of an estate are distributed and it is then found that money is owing to the Canadian Revenue Agency the executors become personally responsible for the tax debt.
To avoid this potential catastrophe, we recommend that executors retain the services of competent accountants to both review and attend to the tax returns. The fees of the accountants, as well as the tax itself, are further expenses of the estate.
The Income Tax Act directs that a person acting as an executor must file certain tax returns on behalf of the deceased person, and on behalf of the estate as follows:
(a) T1 Terminal Return for the year of death. This is a personal tax return for the person who died, as opposed to his or her estate. It will cover the period starting on January 1 of the year of death and ending on the date of death. For example, if the person died on March 15, 2010, the return would cover the period of January 1, 2010 to March 15, 2010. This return is due on the later of either:
(i) the normal filing deadline of April 30 of the year of death, or
(ii) six months after death.
Any T1 Returns for the deceased person for previous years that the deceased has not filed. They are due six months after death, but since they are already late and therefore subject to penalties and interest, it is best to get them filed as soon as possible.
(b) Rights or Things Return. This return does not apply to every estate. It is a return that is filed when there were amounts due to the deceased person which were not paid to him or her yet at the date of death, and therefore were not included in the last T1 return. Examples of the amounts are unpaid work-in-progress for a professional person, dividends that were declared but paid, and farm crops that were not yet harvested.
This return is due on the later of either:
(i) one year after death, or
(ii) 90 days after assessment of the T1 Terminal Return.
(c) T3 Statement of Trust Income. The executor usually must also file a tax return on behalf of the estate itself. The time period for this return starts on the day after the person died, and runs for one year. Most estates are wrapped up in a year and won’t require more than one return, but if the estate does go on longer, a return should be filed for each year.
In some smaller estates, no T3 is needed because the estate itself earns no income. This is something you should ask an accountant about.
The estate’s final tax return includes all income earned by the deceased during the year of death and also includes any capital gains resulting from what is known as the “deemed disposition”. Under Canadian Tax Law when an individual dies they are deemed to sell every capital asset they owned (Rental and commercial properties, investments and securities, etc.) for fair market value. Any capital gains are said to crystalize and the tax then becomes payable. It should be noted that the value of any RRSPS or RRIFs are also treated as income for the year of death.
Generally, legal fees to obtain a grant of probate range between $2,500.00 and $5,000.00 excluding taxes and disbursements. Past experience has shown that various unforeseen and unanticipated issues can arise and, depending on the number and time involved concerning such issues, legal fees may exceed the usual range.
Legal fees for assistance with the administration of an Estate after the grant of probate has been obtained will be calculated on the hourly rates and will depend on our involvement in assisting you with the administration of the estate. In general, fees will be lower if we provide advice and guidance only in respect of your administration of the estate leaving you to perform the leg work yourself. In particular, additional fees would be incurred if we are called upon to manage and distribute estate funds, or to deal with questions from beneficiaries or creditors or if a formal passing of accounts before the court was required. In this case, we expect you may be able to manage most, if not all of the administration of the estate on your own, which would reduce legal costs, however after the Grant is issued, we would be happy to discuss with you what further assistance you require in regard to the administration of the estate.
In addition to our legal fees, we will charge for any disbursements we incur on behalf of yourselves or the estate. These disbursements include charges from our firm for office supplies, facsimile transmissions, photocopies, laser printer copies, postage, parking, and travel costs, if necessary relating directly to this matter. Other disbursements may include long distance telephone calls, courier deliveries, government fees, online e legal research costs, if applicable, fees of agents for filing documents and conducting investigations and searches, and fees of professionals and experts, and the cost of court transcripts, if applicable.
The process of obtaining probate, attending to the determination and payment of debts and taxes and the ultimate distribution of the estate can take months if not years.
The administration of an estate can take many months (if not years) and cost the estate thousands of dollars in expenses. Through careful planning the administration of an estate can be simplified and streamlined reducing or eliminating many of the fees and expenses normally associated.