If there’s one misunderstood part of the estate planning process, it’s probate – a term most people have likely heard but don’t know much about. And for good reason: Not every Will goes through the probate process; the legal steps by which provincial courts validate a deceased person’s Will, though many do.
If you’re unfamiliar with how the process works, it can seem costly and time-consuming, but Sue Noorloos, Director, Estate Planning at BMO Private Wealth, advises clients to look past the fees and potential frustrations and consider the value of the process. “Probate is designed for safety and certainty and the proper transfer of legal title to the intended beneficiaries,” Noorloos says. “It’s the best sort of assurance an executor can have.”
The best way to approach probate, she says, is to separate the process from the fees. Yes, it will cost you money to probate a Will depending on where you live – in Ontario, you’ll have to pay 1.5 percent of the total value of the assets in the estate, which is around the same costs as what you’d pay in B.C. (1.4%) and Nova Scotia (1.7%), though other provinces have much lower fees. That’s before taxes are taken into account and paid. In other words, in B.C., if you have a $10 million pre-tax estate, you’ll have to pay around $140,000 in probate.
However, Noorloos recommends most people, especially those with larger and more complicated estates, go through the process for some of their assets. Why? Because it’s essentially a stamp of approval that the Will is accurate and valid and the executor can follow through on the instructions within that document. In some cases, a financial institution won’t even grant access to assets that don’t go through probate because they want to ensure they’re handing over assets to the right people. “It’s the process by which the court is saying: this is true last Will and Testament,” she says. “When an executor submits a Will for probate, the Court also searches its records for a Will. If family, friends or beneficiaries are aware of a more recent Will, there is an opportunity to submit it. If there is a dispute, it is addressed. After probate, no one is confused as to whether this is the second Will, the first or the last. That process itself is great.”
The trick with probate is to plan ahead – make it part of an overall estate planning discussion – so you can develop strategies around minimizing fees while still taking advantage of the good parts of the process.
You’ll want to talk to a professional about what has to go through probate – assets that don’t go through probate won’t be subject to fees – but here are a few cost-reducing strategies to consider.
It is important to note that in Quebec, if the Will has been signed in front of a notary, there is no probate procedure needed since the document is considered “authentic”, meaning that the document has a special legal status making it difficult to challenge. If a Will hasn’t been notarized, it must be authenticated by the Superior Court of Quebec and this procedure could be subject to fees. In Quebec, a notary is a legal professional, like a lawyer. They advise clients on legal matters but, unlike lawyers, they can’t represent clients in Court when cases are contested.
Have a valid Will
Before anything else, the first step is to ensure you have a valid Will. You may think you’re avoiding probate fees and time-consuming paperwork if there’s no Will to certify, but your estate will face even more costly legal complications without one. Your executor will be the one to oversee the probate process, so the clearer you can make things for them by having a Will, the easier time they’ll have distributing assets from your estate.
Minimize your estate
Since probate fees are calculated as a percentage of the total estate value, reducing your holdings before you pass away is one way of minimizing probate costs. If you know that you intend to leave money or real estate to your children, consider giving them those funds sooner than later. An estate planner can discuss any tax or legal implications of transferring assets. A financial planner can also ensure that you reserve adequate funds for your own care and maintenance.
Designate beneficiaries
TFSAs, RRSPs and RRIFs, among other accounts, aren’t subject to probate because they can be left directly to beneficiaries. Where possible, consider naming beneficiaries on these accounts if you haven’t already done so. Not only does it reduce the fees you’ll have to pay, but the assets can be distributed faster to the intended recipients. Consult with your professional advisor if you are looking to benefit minor or disabled beneficiaries, to ensure the distributions aligns with your overall estate goals, and that your executor will have adequate liquidity to fund the tax liability that arises at death.
Consider joint ownership
Many people think accounts transfer to a spouse after death, but that’s not necessarily true. Only joint accounts or property held in both spouses’ names can be accessed by the surviving spouse after their loved one dies. If an account is in your name only, it may have to go through probate – and then go through probate again after your partner passes. If it’s a joint account, it only goes through probate after both people pass away. So consider owning assets jointly, whether that’s bank accounts, houses or cars. There are reasons not to hold money jointly, especially in second marriages or blended families where parents may want to ensure their children get assets, so talk to an expert before making changes.
Establish a trust
For high-net-worth estates, trusts can be an effective way to distribute assets outside of a Will. In this case, an inter vivos trust, a type of trust that allows an estate holder to move assets to a trust account during their lifetime, would work best. The accompanying trust deed stipulates how assets within the trust will be managed and distributed after death, bypassing the probate process.
Trusts have another benefit: they can be used to keep details of an estate private, says Noorloos. Going through probate does make information about an estate public, which many high net-worth individuals, naturally, do not like. With an advisor, you can figure out what may be fine having the public eye on or not.
Trusts are also typically harder to challenge in court. “When there are competing family dynamics at play, passing assets by trust can lead to a more certain result,” she says.
Write multiple Wills
It may sound strange, but for business owners in at least some provinces (including Ontario and B.C.), writing a second Will is worth considering as privately held shares in a company can be passed directly to the intended beneficiaries through a separate Will. “There’s some nuance to how it gets drafted,” Noorloos says, but effectively, the second, business-focused Will does not require probate.
Of course, there’s a fine line between what’s officially considered company property and what the courts will insist belongs in an estate.
Map your assets
Creating a document that lays out where all your assets are located will help you and your executor keep track of everything in your estate. When done proactively, it can also help you identify assets that could still be moved out of the probate process.
For the executor, an asset map ensures that none of your assets are overlooked, like an old bank account that was never closed after a move across the province, or to another country, says Noorloos.
So, while the process may seem onerous, there are benefits to it, she notes. “A bit of professional planning goes a long way,” she says, “but I always tell clients, don’t be afraid to pay a little probate when it makes sense to do so.”
