KING CHARLES III AVOIDED PAYING INHERITANCE TAX FOR THE QUEEN’S ESTATE. CAN THE INHERITANCE TAX BE AVOIDED?

As news of the death of the longest reigning monarch of the United Kingdom, Queen Elizabeth II, spreads across the globe, many began to raise questions regarding the disposition of her massive wealth and assets.

Although it is widely known that the transfer of the Crown falls to her son Charles, now known as King Charles III, the details of the inheritance of her estate are much more secretive.

Queen Elizabeth II’s Wealth

As news of the death of the longest reigning monarch of the United Kingdom, Queen Elizabeth II, spreads across the globe, many began to raise questions regarding the disposition of her massive wealth and assets.

Although it is widely known that the transfer of the Crown falls to her son Charles, now known as King Charles III, the details of the inheritance of her estate are much more secretive.

The personal fortune of the Queen consists of her ownership of countless works of art, Crown Jewels, real estate properties, and other investments believed to be worth approximately $500 million; still, just a small portion of the Royal Family’s wealth totaling at least $28 billion, which includes:

• Crown Estate $19.5 billion
• Buckingham Palace $4.9 Billion
• Duchy of Cornwall $1.3 billion
• Duchy of Lancaster $748 million
• Kensington Palace $630 million
• Crown Estate Scotland $592 million

Although her personal wealth will likely be distributed and inherited according to her Last Will and Testament, much of the monarch’s wealth does not make up her private assets and will instead be held in trust for future generations. The assets held in this trust will not belong to any one person and will not be open for sale. However, King Charles III and the Royal Family will be allowed to earn a profit from these properties through activities such as farming and rent. In fact, in 2021 these ventures earned the Royals a revenue of more than $50 million. Of course, a large portion of this money is diverted toward the maintenance of the operations and staff wages.

The Royal Will Secrecy and Inheritance tax

Unfortunately, we will never truly know the exact contents of the Queen’s Will as they shall remain private due to the benefit afforded to the sovereigns of being exempt from probate and thus, not requiring them to make their Wills assessable to the public.

In addition to the pleasure of secrecy, the Queen’s estate also benefits by being exempt from paying inheritance taxes.

While death taxes paid on a deceased’s estate are unavoidable for most, as a result of a memorandum made by Prime Minister John Major in 1993, the avoidance of the 40% UK inheritance tax is now possible for individuals whose inheritance passes from sovereign to sovereign and is worth at least $377,000. Thus, King Charles III’s heirs will not be liable to pay the 40% levy which would have forced the surrender of almost $200 million of the Queen’s private wealth to the government. The argument for this allowance is to preserve some financial independence of the sovereign from the modern government so it can continue to perform its traditional role in the nation.

However, individuals other than King Charles III who are lucky enough to inherit assets from the Queen will have to pay the tax.

The Financial Benefits of Estate Planing

While the Queen may have been exempt from certain rules regarding her inheritance, most of the population is not. However, a properly drawn and executed Last Will by an Estates Lawyer can help minimize the amount of tax we “simple folk” will have to pay upon death. So, no matter how wealthy you are or how large your estate is, it is essential to have a Last Will and Testament because not only will it help structure a beneficial estate plan to save your finances, but it will also ensure that your assets are distributed to your desired beneficiaries after your passing.

Can my children avoid Paying Inheritance Tax in Ontario?

Unfortunately, the simple answer to this question is “No.” Unlike the Queen, we are not afforded the same benefit of being exempt from paying inheritance tax (called Estate Administration Tax in Ontario).   

Nevertheless, there are some ways to avoid, or at least reduce the assets that will attract this tax.

Inheritance Tax is paid when you go through the process called Probate. Through Probate, the court examines the authenticity of the deceased’s Last Will and accepts or appoints an Executor or Trustee to manage the deceased’s estate. It is important to note that not all assets are required to be probated. Assets that typically require probate include:

• Any real estate properties located in the Province of Ontario
• Bank accounts
• Investments and business interests
• Other assets such as furniture, jewellery, vehicles, etc.

As you can notice, the majority of people’s possessions make up assets that would require the Probate process. However, there are some assets which are not subject to the Probate:

• Any real estate in Ontario that was converted to Land Titles System after it was purchased by the deceased and that has not been sold ever since
• RRSP, RRIF, or TFSA that have a designated beneficiary
• Life Insurance proceeds that are paid directly to a beneficiary
• Canadian Pension Plan death benefits
• Assets passed on survivorship

Here are some other ways that will allow you to legally avoid probate: Multiple Wills, Corporate Estate Plans for corporations, Joint Tenancies, Trusts, gifts during one’s lifetime, and reducing the size of your estate.

What are Multiple Wills. When do I need them?

The Dual Will planning technique is one of the most effective ways to minimize the amount of inheritance tax your estate will have to pay. If you combine all your assets in one Will, your estate will be forced to pay tax on the total value of all the assets, even if only some of the assets attracted probate and inheritance tax. In contrast, having Multiple Wills allows the assets that need to be probated to pass under your Primary Will and the rest of the assets that do not attract probate to be part of the Secondary Will.

Usually, the Secondary Will contains corporate assets or shares of investments that typically do not need to be probated. Thus, by having two Wills your estate can avoid paying taxes on some of your assets. The Secondary Will is especially beneficial if you own a corporate shares that are worth a great value.

What is a Joint Tenancy and why I need it?

When assets such as bank accounts and real estate are owned by way of a joint tenancy, upon the death of one of the joint owners the joint owner’s share of the property transfers to the survivor joint tenant automatically. This means that no inheritance tax is triggered.

These laws usually apply to married spouses regardless of the type of asset held by the joint tenancy. However, you should note that if a bank account is held together through a joint tenancy between a parent and an adult child, the law presumed that the asset will still be part of the parent’s estate. The adult child will have to prove to the court that the funds held in the joint bank account had been gifted to them.

Thus, it is important to seek advice from an Estate Lawyer and Real Estate Lawyer like Beffa Law if you plan to use the joint tenancy scheme in an attempt to avoid Probate to ensure that your beneficiaries are not surprised by later on.

What is A Living Trust? do I need a Living Trust?

Another way you can avoid inheritance tax is by creating a Trust. A Trust is an arrangement that is created when you transfer some type of financial benefit (i.e., money, real estate, etc.) to another person, called the trustee, to hold and manage while retaining the ownership of the assets yourself.

Your trust will outline the rules for the beneficiary who can use or benefit from the assets in the trust, and eventually to whom the assets will be distributed. A Trust may allow a trustee to release the money to certain beneficiaries, such as your family members, in repeating payments when needed.

A trust is especially beneficial if you know that your beneficiary will have trouble inheriting large amounts of money as it will allow you to provide financial assistance without worrying the beneficiary spending the funds all at once.

A Living Trust is exempt from inheritance tax as the assets fall outside of your estate. Instead, your heirs will only have to pay income tax or capital gain tax if the property is sold or money is taken out of the trust.

What Are ”In Vivo”Gifts? How Are they Valuable?

Inheritance tax can also be minimized by gifting your assets during your lifetime to your family and friends. These gifts will allow for the reduction of the total value of your estate which will ultimately reduce the amount of inheritance tax required to be paid.

However, you should remember that if a gift is given during your lifetime, you may not be able to get the gift back as gifts are irrevocable in law. Since you will not be able to revoke the gift, please approach gift giving seriously, especially if the gift is large or expensive.

Additionally, if you plan on gifting real estate you should be aware of the additional fees that would need to be paid, such as land transfer tax, etc. These types of gifts should be given at a fair market value as they will also attract capital gain tax. Thus, before transferring your property by way of a gift, consult a real estate lawyer like Beffa Law who can advise you on all the costs of the transfer of title.

What Is a Small Estate in Ontario? What are the benefits of a small estate?

Recently,  Ontario law changed and the inheritance tax is not payable for an estate that is valued under $50,000. Thus, if you keep the value of your estate under $50,000, whether using the methods listed above or if the value of all your assets are below this amount, your estate will not be required to pay inheritance tax.

However, if your estate value is above $50,000, a 1.5% tax is paid on any value over $50,000. For example, if your estate is worth $500,000, the first $50,000 is exempt, and your estate will have to pay $6,750 on the remaining $450,000.

What are The Emotional Benefits of the estate planning

Make The Life of Those You Leave Behind Easier

Losing a loved one is one of the most difficult times in a person’s life. On top of grieving their death, there are also numerous administrative tasks that need to be done. This will undoubtedly bring additional stress to your family members.

If you do not have a Will or other financial arrangements in place that deal with how your property should be transferred upon your death, your family members will need to spend a great deal of time and money to figure out how to manage your estate.

Personal Peace of Mind

If you do not have a Will, upon your death your assets will be distributed according to the laws of intestacy found in Ontario’s Succession Law Reform Act. This Act outlines rules by which your closest next-of-kin will inherit your estate.

The law will distribute your estate in a one-way-fits-all approach. Unfortunately, this may not reflect what you would have chosen if you had the chance. Thus, expressing your wishes through a Will not only will make it easier for your family to have a guide on how to administer your estate, but you can also attain peace of mind knowing that your assets will be inherited by the people whom you choose in the way you choose. Therefore, if you would like to have control over how your property will be distributed, it is best to execute your Last Will and Testament.

How Can An Estate Lawyer Help me?

As can be seen, the rules surrounding your assets and inheritance tax may be complicated and the consequences of improperly dealing with your assets can result not only in a great deal of stress but also in large financial costs.

An Estate Lawyer like Beffa Law will be able to create formal documents to help manage your assets during your lifetime and ensure your assets are distributed according to your wishes after your death. An estate lawyer will also help you structure a solid estate plan to ensure your estate is paying the least amount of inheritance tax allowable in your circumstance while meeting the laws of your province.

Without the legal advice and guidance of an Estate Lawyer, significant obstacles may arise in relation to your estate after your death, at which point it is too late to make any changes. Your affairs will be left to be handled by your family members who may be unsure of how to act. An estate lawyer will ensure your estate is transferred smoothly with as much benefit retained by your family as possible.

As death is inescapable, it is best to plan for what happens after death while you still have the chance.

At Beffa Law, we will support you in your role as trustee, help you gather the necessary documents, file for probate, and provide guidance through the administration process. Call us at 647-812-8462 or email us at info@beffalaw.ca to set up an appointment to discuss your estate questions or concerns.