What’s the Deal with Probate?

August 28th, 2019 post featured image

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.