What’s the Deal with Probate?

What’s the Deal with Probate?

In Canada, probate is the process by which the provincial court verifies a will as current and legitimate. Although probate is not required, per se, it can be a helpful process for the people trying to handle the estate of a loved one because it grants legal power to an executor. This allows the executor to go about dividing an estate without pushback from institutions holding the deceased’s assets – like banks – who cannot verify wills and therefore may otherwise refuse to deal with them.

Despite the benefits of the process, people tend to fixate on the cost of probate and, depending on which province you live in, the complexity of the fee structures. Probate costs vary (sometimes drastically) by province and estate size. For example, in Quebec, no fee is assigned to probate whereas in Alberta, it can cost up to $525. Several provinces charge a flat amount for the first $10,000 of the estate and a percentage of every $1,000 after. Manitoba, for example, charges $70 + $7 per $1,000 or fraction thereof in excess of $10,000.

Too often, people will make financial decisions in an attempt to circumvent paying “death taxes” which end up having significant, unintended consequences that make paying for probate look like a dream.

One such common decision is joint ownership. Older parents will sometimes make a child a joint owner of an asset, like a bank account or a house, without fully understanding the avenues of access they’re opening by doing so. What happens if that child files for divorce? How about if they get into an accident and are being sued as a result? Being a joint owner means the parent’s assets are viewed as belonging equally to the child and are therefore accessible to outside parties regardless of the parent’s wishes, which adds additional risk to an asset that wasn’t a concern before.

Because estate planning is so complex, here are three potential ways to minimize probate fees, ‘at a glance’.

1.Designate Beneficiaries       

Non-registered assets that are put into segregated funds, a permanent life insurance policy or a fixed term investment offered by an insurance carrier, like a GIC or term deposit, may allow people to designate a beneficiary to whom the proceeds will flow directly; bypassing probate and other legal and estate fees. Designating beneficiaries can be an effective way to minimize probate fees, however it should not be the only reason for choosing a product.  Working with a financial advisor to review your needs and beneficiaries is an important part of the estate planning process.

2. Establish a Trust

A trust is “best described as a relationship of trust between two or more persons whereby one person (called the Trustee) holds the legal ownership and control of property for the benefit of someone else (called the Beneficiary).” There are many different types of trusts and each have their own oversight and administration fees.

Trusts can be a method of minimizing probate fees since the assets within them, at the time of disbursement, will be dealt with under the conditions of the trust (the Trust Agreement) and not of the estate. With increased tax legislation in the past decade however, trusts are a decreasingly accessible investment option for the “average investor.”

3. Give Gifts

One of the simplest ways to reduce estate-related fees is to decrease the number of assets that will be included as a part of an estate upon death. For those people who can afford to, gift giving before death might be a practical and even emotionally rewarding way to downsize an estate. It could also provide a window of opportunity to talk to loved ones about any remaining assets, expectations, and final wishes.

Communication and good planning will go a long way to alleviate stress and uncertainty for our loved ones when we’re gone. Try to remember estate planning is ultimately for their benefit and come to terms with the fact that, in some cases, probate may make the lives of our loved ones easier (or at least not more difficult).

While minimizing probate fees is great, your entire financial plan should not revolve around strategies for doing so. It’s important to meet with an estate planner who can assess your situation and advise on what options for minimizing probate fees are suitable for you.

Connect with us for more information on estate planning.

Estate Planning Can Make Us Feel Comfortable and in Control

Estate Planning Can Make Us Feel Comfortable and in Control

“The greatest mistake we make is living in constant fear that we will make one.” – John C. Maxwell

Though there are many misconceptions about financial planning, two common ones are:

it’s only for the wealthy and/or

it’s only for ‘type As’ with Herculean levels of self-discipline.

Even people in the throes of planning – who are neither wealthy nor perfect – can find themselves deterred by certain types of planning for fear of not having enough or making mistakes.

Estate planning, “the disposition of assets during life and at death,”[1] is an example of planning that tends to inspire discomfort and aversion. At first glance, estate planning focuses on things that require us to acknowledge our eventual passing and really, relinquish our sense of control over our lives and our assets. Think wills, powers of attorney and executors.

Good advisors, more than anyone, know how hard it is to think about and plan for the time after we’re gone. Combine these heavy emotions with the complexity of estate planning and it is understandable why people might feel overwhelmed and prefer to ignore it altogether. But estate planning is far more about gaining control than relinquishing it and far less about ourselves and more about our loved ones.

For those who have been avoiding estate planning, here are three key questions to consider:

1. Do you have assets?

Although this is a straightforward question, a lot of people overthink their answer. Young people especially, who tend to have lower incomes and fewer assets, convince themselves they don’t need a formal, legally binding will because they don’t have enough to bother. What many of them don’t consider however, is their debt and how it too can be inherited by loved ones after their passing.

Perhaps paying for a lawyer to draw up a will isn’t practical or necessary for some but having a plan for their assets (and debt) in the event of their passing is.

If this reasoning sounds familiar, consider writing a holographic will. It is simply a letter of direction signed by two non-beneficiaries that outlines how your assets are to be divided and distributed. Though more contestable than a formal will, it is still a legally binding document unlike giving someone verbal instructions.

2. Do you have dependents?

The last thing anyone wants is for the government to choose a guardian for our loved ones. Estate planning looks at the impact our passing would have on loved ones and helps us determine the key people we need to appoint (trustees, guardians, beneficiaries) to ensure our minor children, dependents, and even pets will be taken care of in the manner we approve. There’s no need to worry about making a mistake either, these key players can be modified as life circumstances change.

Estate planning also addresses survivor income needs, often in the form of life insurance. To be clear, different cultures have different opinions on life insurance which means there is no one ‘right’ view. One way to think of it, however, is as a method of compensating for the loss of your income and ensuring your family has the time and resources to deal with your passing as comfortably as possible.

3. What are your final wishes?

Rituals and practices surrounding death vary all over the world. In Canada, having a funeral is commonplace and so is having to make the very personal decision between burial, cremation, or perhaps other options. Trying to plan for and make these kinds of decisions on behalf of others can be extremely difficult and emotionally taxing.

Having a will that explicitly outlines final wishes (i.e. specific funeral details, charitable intentions, burial or cremation preferences, etc.) can help alleviate stress on loved ones and ensure they don’t grapple with the choices they may otherwise be required to make.

Even if our natural inclination is to shy away from estate planning – whether it is because we’re afraid of making mistakes others will suffer the consequences of (i.e. triggering taxes) or because of the unease thinking about death brings – it’s important to keep in mind that having a plan keeps us feeling in control and at ease.

As difficult as it may be to imagine the time after we’re gone, it is so much more comforting to know our planning can help soften the impact of our eventual absence on our loved ones and hopefully, enable their continued protection and prosperity.

For help establishing or revising your estate plan, contact us.

[1] https://keystonebt.com/2014/08/exit-planning-succession-planning-estate-planning-similarities-and-differences/