To Probate or Not To Probate

Tuesday Jul 19th, 2016


To probate or not to probate

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Whether you are just beginning your own estate planning or you have been named executor for someone else’s estate, at some point you will want to consider the role of probate. (This concept is less common in the province of Quebec, as notarial Wills do not require probate.)

Before making any decisions regarding whether probate should be sought, you will first require a good understanding of what probate is, what it does, and why some people seek to avoid it.

Probate does not give the executors their power and authorization to act on behalf of an estate – a will does that — but probate is the court process that legally confirms their authority by granting the executor letters probate (or in Ontario, a certificate of estate trustee with a will). Some executors do not bother with this step, while others do. Why? Some of the benefits of seeking probate include:

  • Proof of executor’s authority to third parties. This is crucial, as part of the executor’s duties include the need to deal with the assets of the deceased person. Third parties may require probate to ensure that they are dealing with the authorized executor, protecting them from claims that funds were paid out to the wrong party. Third parties may include financial institutions (so the executor can have authority on bank and securities accounts) and transfer agents (for the transfer of certain types of securities out of the name of the deceased).
  • Ease when the estate includes a land transfer. Although there are some exceptions to this rule, land registry offices will generally require probate in order to transfer land out of the name of the deceased and into the name of someone else.
  • Creation of time limits on claims against the estate. Certain claims that the law allows against an estate (such as a claim for dependant’s relief or family law claims) may be time-limited and, depending on the jurisdiction, the limitation period may be measured against the date of the grant of probate. Without the grant, the time period for such claims may never expire.

Given these benefits, one may wonder why any person planning their estate, or an executor of an estate, may want to avoid the probate process. One reason may be privacy. Once a grant of probate is granted by the court, the probated will becomes a public document, available for viewing by anyone interested in searching for it.

The more common reason for avoiding probate, though, relates to the fees or taxes charged by the provincial governments. Some provinces and territories have flat fees, but most provinces charge rates based on the value of assets subject to the grant of probate. These rates vary from province to province, but can be as high as $15 for every $1,000 of assets subject to probate.

The calculation of assets to be included also varies provincially. In some provinces, certain debts of the deceased can be deducted from the value of the assets subject to probate, but these deductions are not consistent across the country.

Certain assets of an estate do not require probate in order to be transferred. For example, joint accounts will generally transfer directly to the surviving joint account holder on the death of the first (depending on the terms of the account agreement).

In this situation, a financial institution or land registry office may only require proof of death (such as a death certificate) and not probate in order to transfer the account to the sole ownership of the surviving holder. Making accounts joint is a common probate avoidance technique, but this should not be done without competent advice regarding the legal and tax implications of making the account joint, as it sometimes leads to unintended consequences.

Registered accounts (RRSPs, RIFs and TFSAs) and life insurance policies that have designated beneficiaries will also generally pass to the named beneficiary outside of the estate, meaning that probate is not required for their transfer. Again, making these types of designations can have important consequences to an estate that need to be fully understood before beneficiaries are designated.

Probate can be an important tool for an executor. There any many prudent and legitimate ways to structure your affairs in order to reduce the exposure of your estate to high probate fees in jurisdictions where that is an issue, but these strategies must be done with appropriate legal and tax advice to ensure there are no unintended consequences. Otherwise, the costs to your executor and estate to solve for these consequences may far exceed the probate taxes you were seeking to avoid.

Source:Leanne Kaufman is vice-president, professional practice group, RBC Wealth Management and author of The Executor’s Handbook

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