Probate Considerations in Real Estate

What is Probate?

Probate is the actual legal process that confirms a deceased person's will and grants a person authority as the executor of the estate - through a Certificate of Appointment of Estate Trustee.

When a person dies with a will, the executor named in the will is responsible for applying for a Certificate of Appointment of Estate Trustee. If the deceased died without a will (intestate), a family member or other interested party may apply for a Certificate of Appointment of Estate Trustee without a will.

Once the certificate is granted, the estate trustee is authorized to manage and distribute the estate according to the terms of the will or the rules of intestacy under the Succession Law Reform Act.

Is Probate Necessary?

When a property is owned solely by the deceased, probate is generally required before the estate trustee can sell or transfer the property.

However, if the property was owned as joint tenants with another person with a right of survivorship, the surviving joint owner will automatically inherit the property without the need for probate. In these cases, a real estate lawyer can assist in updating the property title to reflect the change in ownership.

There's also something called the First Dealings Exemption, where a property can be sold without the need for probate, if it's the first time the property is being dealt with since being converted to Land Titles. Again, consult a lawyer to confirm whether this applies.

Timing

The probate process can take several months or longer, depending on the complexity of the estate and the backlog at the court.

This can significantly impact the timeline of a real estate transaction, so it's crucial to factor in potential probate delays when listing a property for sale or negotiating an Agreement of Purchase and Sale.

Taxes and Fees

In Ontario, estate administration tax (also known as probate fees) is payable on the value of the estate. The estate administration tax is calculated based on the value of the estate assets, which may include the property being transferred or sold.

Lawyers can provide guidance on the calculation and payment of these fees, including if any exceptions apply. They can also assist with any necessary tax clearance certificates.

If you want an estimate of probate fees for an estate, the province has an online calculator you can use.

Encumbrances and Liens

Estate trustees need to be aware of any encumbrances or liens on a property that is being transferred or sold, as these may affect the value and marketability. It's advisable to conduct a title search before any transfer or sale is made, to identify the issues and take appropriate action to resolve them.

Purchase and Sale Agreements

When a property is being sold as part of a probate estate, it's necessary to include specific provisions in the Agreement of Purchase and Sale to address any potential issues. These may include a clause making the offer conditional on obtaining the Certificate of Appointment of Estate Trustee or a clause that allows for flexibility in the closing date to accommodate probate delays.

Distribution of Proceeds

Once the real estate transaction is complete, the estate trustee is responsible for distributing the proceeds in accordance with the terms of the will or the rules of intestacy. The trustee should consult their own lawyer to receive specific guidance regarding the proper distribution of proceeds and ensure that they stay compliant with their legal requirements and protect themselves from liability.

Summary

Here's a short summary of the probate considerations that one should consider when dealing with real estate in Ontario:

• Probate is the process of confirming the will and the estate trustee
• Probate is usually required before a deceased's real estate can be sold, subject to some exception
• It's necessary to factor in the length of the probate process when considering real estate transactions (can be several months)
• Don't forget to account for estate administration tax (probate fees)
• Check the property's title for encumbrances and liens
• Draft Agreements of Purchase and Sale with appropriate provisions to deal with the circumstances
• Obtain legal guidance for proper instruction on distributing proceeds after the sale of property