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Severing A Joint Tenancy by Course of Dealing
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Avoiding Probate: What is the First Dealings Exemption?

It is generally understood that an estate typically needs to go through probate where the deceased held real property without any other “joint tenants”.1 With the dramatic rise in Canadian real estate prices over the past two decades, this means that the estate administration tax (also known as probate fees) owing on that real property may be substantial. Consider an estate where its only asset was a house with a value of $1,000,000. If that estate has to go through probate, it would owe the Government of Ontario $14,250.00.2 For a house worth $2,000,000, the probate fees associated with that house would approach $30,000.

Contrary to popular belief, however, there are some exceptions that allow us to deal with real property without first having to go through probate. One of the more curious and relatively unknown exceptions is known as the “first dealings” exemption.

What is the First Dealings Exemption?

Where an Ontario property has been converted to the Land Titles system from the Land Registry system, and is being dealt with for the first time since that conversion (i.e. its “first dealings”), the requirement to apply for probate to sell the property may be waived.3 The Land Registry system was a historical paper record used in Ontario to track ownership of properties up until the 1980s. It was eventually replaced by the Land Title System over the past 30 years, which is an electronic record that tracks title to Ontario properties.4

But what constitutes a “first dealing”? Making this determination is ultimately up to the Director of Titles in Ontario, and there is little guidance to date on this point. To make matters worse, some have suggested each Land Registry Office in Ontario may have differing views on what constitutes a first dealing.5 While the sale of a property would almost certainly constitute a first dealing, other transactions may not, such as discharges of mortgages, notices registered on title, leases, survivorship applications, transfers between spouses pursuant to a separation agreement, and the severance of a joint tenancy.6

In the recent decision Blanks v. Roberts, 2020 ONSC 7133, the court briefly raises the first dealings exemption through reference to the defendant’s affidavit. In that affidavit, the defendant suggested that the act of placing property into a trust held by corporations for investment purposes would constitute a first dealing.7 However, the court does not indicate whether they agree with that interpretation.

To deal with a property using the first dealings exemption, the following statements should be included in a supporting affidavit by the applicant, or by way of “Law Statements” from a real estate solicitor:

  1. the property has been converted from Registry to the Land Titles System by the Ministry;
  2. the Transaction is the first dealing after the conversion of the property;
  3. the value of the estate must be specified;
  4. the will is the last will and testament and a certificate of appointment of estate trustee was not applied for;
  5. the will was executed when the testator was the age of majority and was not otherwise revoked; and
  6. proof of the deceased’s death.8

Application of First Dealings Exemption to Estate Litigation

While the taxes associated with probate may be significant, the act of probate also provides a certain protection to the estate’s beneficiaries that should not be overlooked. Where the beneficiaries are concerned that the estate’s executor will breach his or her fiduciary duties to the estate and mishandle the sale of the property, those beneficiaries may object to the executor’s application to apply for a certificate of appointment of estate trustee (also known as a probate application). Filing this objection halts the probate application temporarily and triggers a court process to determine whether the executor should receive its certificate of appointment.9

Beneficiaries of an estate should therefore be wary of the possible misuse of the “first dealings” exemption. While it may be an excellent cost savings tool, it also opens a door for appointed executors to sell the deceased’s property without going through the usual required steps associated with the formal appointment of an estate trustee, including the requirement to notify the estate’s beneficiaries. Without this protective component of probate, beneficiaries may not be able to prevent the executor from selling the property without first proactively bringing an application to the court to prevent its sale. Beneficiaries concerned that an estate may be at risk of misuse through the first dealings exemption are therefore encouraged to seek advice from competent legal counsel.

 

Footnotes
  1.   A “joint tenant” is a joint owner of the property, and holds a right of survivorship to that property. That is, where there are two joint tenants, and one of them dies, the other receives the deceased’s entire interest in the property through “right of survivorship” without that property passing through the estate. No probate fees would apply to the value of the property in this case.
     
  2.   See the Government of Ontario webpage here for information on how to calculate the Estate Administration Tax. In this case, the first $50,000 would not be taxed, then the remaining value of the estate would be taxed at 1.5%.
     
  3.   Vincent J. De Angelis, “A Summary of the Principles and Procedures for Estate Conveyancing in the World of Electronic Registration” (Ontario Bar Association: February 6, 2014), p. 24, s. 5.1(b).
     
  4.   Ryder-Burbidge Hurley Foster, “Ontario Land Titles Act & Registry Act Explained” (December 14, 2021), available online.
     
  5.   Vincent J. De Angelis, “A Summary of the Principles and Procedures for Estate Conveyancing in the World of Electronic Registration” (Ontario Bar Association: February 6, 2014), p. 25, s. 5.1(b).
     
  6.   Vincent J. De Angelis, “A Summary of the Principles and Procedures for Estate Conveyancing in the World of Electronic Registration” (Ontario Bar Association: February 6, 2014), p. 25, s. 5.1(b); Law Society of Upper Canada, “Questions/Answers the Annotated Will 2017” (January 2017), available online.
     
  7.   Blanks v. Roberts, 2020 ONSC 7133 at para 84.
     
  8.   Ministry of Consumer and Commercial Relations, Bulletin No. 2000-6 (December 20, 2000), Part III available online.Vincent J. De Angelis, “A Summary of the Principles and Procedures for Estate Conveyancing in the World of Electronic Registration” (Ontario Bar Association: February 6, 2014), p. 24, s. 5.1(b).
     
  9.   See Rule 75.03 of the Rules of Civil Procedure. The process of filing a notice of objection triggers a process for the parties to contest the executor’s appointment as estate trustee through an application for directions.
     

The author of this blog is Peter Neufeld. Peter is a partner at Wagner Sidlofsky LLP. This Toronto office is a boutique litigation law firm whose practice is focused on estate and commercial litigation.

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This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
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