There is one thing we do not like to see with our clients, Their estate being probated. Unfortunately, common sense or reasonability amongst financial institutions is marred by fear of reprisal if there is an error in the ownership and transition of assets in settling estates.
Probate is on the minds of many Canadian families, especially as the value of their assets increase. The cost of probate fees on growing assets needs to be considered in every estate plan. Let’s review what probate is and the fees Canadians face before we look at some strategies that could work in proper estate planning and protection.
Executor
The probate process is the legal procedure after death to validate the will and administer the estate. The executor named in the will, or an appointed administrator if there is no will, is responsible for initiating the application process.
An executor is a person responsible, after you pass, for making sure that your assets are distributed according to your wishes and that your estate is settled properly. This includes a wide range of activities, from filing a final (terminal) tax return, cancelling your credit cards, giving away your belongings, and selling your home and investments. It’s a lot of work, with potential liability if the executor makes a mistake. You can choose a person you know, a professional executor or a financial institution to be your executor.
Probate process
The court reviews the application to ensure the will meets the necessary requirements, and it will grant the probate if everything is in order. Then, the executor collects the deceased person’s assets, pays off any debts, and distributes the remaining assets according to the will’s instructions—or the applicable laws of intestacy if there is no will.
Then there are the probate fees. These charges are imposed by the provincial/territorial government on the value of a deceased person’s estate during the probate process. The rules and rates vary across provinces and territories. But generally, these fees are calculated as a percentage of the total estate value and can be significant. They are intended to cover administrative costs associated with probate, such as court proceedings, document processing, and estate administration supervision. It’s important to note that probate fees are separate from income taxes that may apply to the estate.
Strategies for probate protection
As the probate fees can be substantial, especially for larger estates, individuals may explore estate planning strategies to minimize the probate fees and preserve more of their estate’s value for their beneficiaries. Let’s review a few options that can help to reduce or avoid probate.
Joint ownership and survivorship
One effective method to bypass both the probate process and the fees is to hold assets jointly with rights of survivorship. Assets such as real estate, joint bank accounts and investments may qualify. When one joint owner passes away, ownership automatically transfers to the surviving joint owner without the need for probate. Individuals should ensure that assets can be transferred seamlessly by clearly specifying survivorship on legal documents.
Usually this is the case. Some financial institutions may still seek to probate jointly held accounts on the premise that there may be another entitled party entitled to the assets, outside of the successor owner. We’ve personally seen, and dealt with this, on occasion. They are wanting to ensure that they have court instruction on asset distribution. Their supposed fail safe.
Beneficiary designations
Naming beneficiaries for specific assets can be very efficient. Life insurance policies, RRSPs, RRIFs and TFSAs allow individuals to designate beneficiaries, which saves time and probate fees. These assets bypass the probate process and are directly transferred to the named beneficiaries upon the account holder’s death. Regularly reviewing and updating beneficiary designations with a Certified Financial Planner is crucial to ensure accuracy.
Establishing trusts
Trusts are effective for avoiding probate while retaining control over assets. Setting up a living trust, such as a revocable or inter vivos trust, allows individuals to transfer assets to the trust during their lifetime. The trust document specifies how the assets are managed and distributed after the individual’s death, bypassing probate. Consulting with a knowledgeable estate planning professional is essential in ensuring proper set-up. We ensure that if our client’s financial life plan needs an estate planning professional, we introduce one into the relationship.
Gifting
By gifting assets during their lifetime, individuals can reduce their estate’s value, thereby minimizing the need for probate. Gifted assets no longer form part of the estate upon death. However, it is important to consider tax implications and legal restrictions associated with gifting. Seeking professional advice is prudent and can ensure compliance with tax laws and proper execution of gifting strategies.
The bottomline
As you can see, avoiding the probate process can save time, money, and streamline the transfer of assets to beneficiaries via the strategies listed above. Remember, estate planning is a complex process, and individual circumstances are as unique as the person whose name is on the will and their families and loved ones involved.
It’s always a good idea to get personal and professional advice from lawyers, estate planners and a Certified Financial Planner, who usually invite these professionals into the planning if prudent, to help you navigate the intricacies of avoiding probate effectively. Proper planning and foresight are key to Keeping Life Current.
