Sunday, November 27, 2005

Liabilities and British Columbia Probate Fees

In my October 22, 2005 post, “British Columbia Probate Fees," I wrote that the amount of probate fees payable is based on the value of the deceased’s estate. I discussed the basic structure this tax in my earlier post, but did not discuss whether liabilities are deducted from assets in calculating the amount of probate fees. In other words, are probate fees payable on the gross value of the estate assets, without deduction for liabilities, or on the net estate, after the deceased’s debts and other liabilities are deducted from the value of the estate?

For example, let’s assume that Albert dies leaving an estate consisting of a $100,000 bank account, no other assets, and no liabilities. Bob dies leaving an estate consisting of a $500,000 bank account, no other assets, and owes Carl $400,000. Bob has not given Carl any security for the $400,000 debt. We also assume that Albert and Bob were resident in British Columbia when they died and their executors have to apply to probate the wills in order for the banks to release the funds to the executors. Are the probate fees payable on Albert’s estate, and Bob’s estate the same? Principles of fairness may require that the amount of probate fees payable would be the same--but not British Columbia’s Ministry of Finance.

Section 1 of the Probate Fee Act, SBC 1999, c. 4, says that the
"value of the estate" means the gross value, as deposed to in a Statement of Assets, Liabilities and Distribution exhibited to the affidavit leading to a grant or to a resealing, as the case may be, of
(a) the real and tangible personal property of the deceased situated in British Columbia, and
(b) if the deceased was ordinarily resident in British Columbia immediately before the date of death, the intangible personal property of the deceased, wherever situated,
that passes to the personal representative at the date of death.

However, the British Columbia Supreme Court registries allow mortgages registered against the title to land to be deducted from the value of the land when the land and the land’s value are disclosed on the assets section of the Statement of Assets, Liabilities and Distribution. (The statement should show the gross value of the land, the amount owing on the mortgage, and the net value as at the date of death.) Similarly, liabilities that are secured against personal property may be deducted from the value of such assets on the Statement of Assets, Liabilities and Distribution. In practice the “gross value” of an asset that is encumbered by a financial charge means the net value of the asset after deducting the amount owing on that financial charge.

On the other hand, no relief is available for unsecured debts.

Let us add Donald to our example. He dies owning a house in British Columbia worth $500,000 with a mortgage registered against the house. He owes $300,000 under the mortgage, and has no other assets or liabilities.

Accordingly, the net values (after deducting liabilities from assets)of Albert’s estate and Bob’s estate are each $100,000, and the net value of Donald’s estate is $200,000. In addition to the $208 filing fee, Albert’s estate has to pay $1000, Bob’s estate has to pay $6600, and Donald’s estate has to pay $2400 in probate fees. Therefore, Bob’s estate, which is really worth only half of Donald’s estate, has to pay two to three times as much in probate fees to the provincial government.

Does this seem like a fair method of taxation to anyone?

1 comment:

Super Squirrel said...

Thanks for this posting! I've been assuming the government played fair and only charged the probate fee on the net value. How sad that they don't!