Our Family Office Group’s offering is focused on leaving a legacy, and a big part of that is how, and how much, Canadian families want to leave to their beneficiaries, heirs, charities, etc.

But before any of that can happen, the government will want their share. One relatively easy but often ignored way to minimize government estate levies is to avoid probate fees.

Understanding Probate

Probate is the process whereby a provincial court certifies the validity of a will and confirms the authority of the executor to administer the estate of the deceased. The executor is responsible for administering the estate and distributing assets according to the will. The probate process allows public institutions like banks, land titles offices, and share brokerages to rely on the probated will as being the valid will.  Probate fees are calculated based on the total value of the estate, and they can be a significant expense. For example, in Ontario, the current rate is $0 for the value of an estate up to $50,000 and 1.5% on any amount over this threshold.  (Thus, as an example, a $2 million house that is passed on through a will would be subject to approximately $30,000 in probate fees.)  In addition, the process may be quite lengthy, delaying the beneficiaries from accessing the estate.

Strategies to Avoid Probate

• Joint Ownership with Right of Survivorship: Transferring assets into joint ownership with a right of survivorship is a common strategy to avoid probate. When one joint owner passes away, the surviving owner automatically becomes the sole owner of the asset without the need for probate. This is applicable to assets such as real estate, bank accounts, and investment accounts.
• Designation of Beneficiaries: Naming beneficiaries on assets like life insurance policies, registered retirement savings plans (RRSPs), and tax-free savings accounts (TFSAs) allows these assets to bypass probate and go directly to the named beneficiaries. Ensuring that these designations are up to date is crucial to avoid unintended consequences.
• Use of Revocable Living Trusts: Creating a revocable living trust allows you to transfer assets into the trust during your lifetime. Since the trust continues to exist after your death, the assets held within it do not go through probate. This strategy provides more control over the distribution of assets and can offer privacy since the details of a trust are generally not made public.
• Gifting During Your Lifetime: Reduce the overall value of your estate by gifting assets during your lifetime. In Ontario, gifts made more than three years before your death are generally not subject to probate fees. However, this strategy requires careful planning to ensure it aligns with your overall financial goals.
• Gifts in Contemplation of Death: (Donatio Mortis Causa – DMC):  This is a gift that is made in contemplation of death and conditional upon it. A DMC does not form part of your estate, and thus is not subject to probate fees. DMCs are revocable, meaning that you can change your mind prior to death.  To be valid, a DMC must be made in anticipation of your death and the gift must be conditional upon your death resulting from a disorder existing at the time the gift is made. If death does not follow as contemplated, the gift reverts to you.
• Multiple Wills: This involves creating two distinct wills – a primary will, often referred to as the probate will, which explicitly addresses assets subject to probate, such as real estate and certain bank accounts, and a secondary will, known as the non probate will that covers assets that can bypass the probate process. Each will, designates an executor, with the executor of the primary will managing the probate-bound assets and the executor of the secondary will overseeing the distribution of non-probate assets. It is crucial to seek professional legal advice to ensure compliance with jurisdiction-specific laws and regulations, as well as to maintain consistency and coherence between the two wills.
• Transferring Your Wealth via Life Insurance:  As a beneficiary may be named to receive life insurance proceeds, they are paid directly to potential heirs without going through the will.  In this way wealth can be passed on to future generations without incurring probate fees.  In addition, death benefit proceeds are paid out tax free also avoiding capital gains and income taxes that other investment vehicles may be subject to, due to deemed disposition rules.

While probate cannot always be completely avoided, implementing these strategies can help minimize its impact on your estate and ensure your legacy   Consult with me or our Foster Family Office advisors on this topic, along with your other estate planning objectives.

Disclaimer: This article is for general information purposes only, and is not legal, financial, or tax planning advice.   Everyone’s situation is unique, and this article cannot apply to every person.  The reader should not take any action, or refrain from taking any action, as a result of this article without first obtaining legal or professional advice.