Douglas Buchmayer, Partner, Gowling WLG (Canada) LLP.
Although situations where the first dealing exemption applies are becoming increasingly uncommon, it is still important to assess the potential implications of a first dealing when undertaking probate planning involving real estate for couples.
The first dealing exemption in Ontario applies when land originally registered under the Land Registry system has been administratively converted by the government to Land Titles, and no change of ownership has occurred since that conversion. If a valid Will exists and a Certificate of Appointment (“probate”) has not been obtained, a Transmission Application may be registered without the usual requirement to obtain such Certificate, thereby saving probate fees.
Consider, for example, a couple—Jack and Jill—who wish to convert Jack’s sole ownership of their home to joint tenancy. When real property is held in one spouse’s name alone, but both spouses’ Wills reflect a common intention to leave their entire estates to one another, we typically advise transferring ownership to both spouses as joint tenants.
As joint tenants, when the first spouse dies, the property automatically becomes solely owned by the surviving spouse by “right of survivorship.” Because this occurs outside the Will, the property’s value is not included when calculating probate fees on the first death (if probate is otherwise required). Instead, probate fees are deferred until the second death.
Without joint tenancy, if Jill dies first, there is no issue. However, if Jack dies first, his Will will normally require probate to transfer the property to Jill, and probate of Jill’s Will would then be required to deal with the property upon her death.
For perspective, probate fees on a $1 million property are approximately $15,000. If probate is required twice on the same property, this could double to $30,000. Joint tenancy completely avoids this risk (or the need to speculate on who will die first). Probate fees will still be payable on the survivor’s death, but the order of death no longer matters.
Unless other considerations apply (such as creditor protection, which may warrant keeping the property out of Jill’s name), converting ownership to joint tenancy in these circumstances generally makes sense.
However, if it is discovered that the home benefits from the first dealing exemption, the analysis changes. With this exemption, if Jack dies first, his Will does not require probate for the property’s transfer to Jill, and probate fees would only be payable upon Jill’s death. If Jack is the last to die, probate fees would never be required on either death.
This makes the recommendation to transfer title to joint tenancy less attractive, as there is actually a probate fee advantage to leaving ownership as it currently stands (provided Jack is the last to die). Moreover, transferring title now to joint tenancy will eliminate the first dealing exemption, as a transfer would have occurred after the land was converted to Land Titles, and therefore it’s no longer eligible as a “first dealing”.
This is therefore an either/or decision. Jack and Jill can either convert the property to joint tenancy now, making probate fees an eventual certainty, or rely on the “first dealing” exemption, in which case probate fees become a 50/50 probability.
At a minimum, Jack and Jill need to be advised of this consequence before converting title in the home to joint tenancy, which is why all such discussions should begin with obtaining a parcel register.
