Managing Your Money

To probate or not to probate – that could be a costly question

Probate – what the heck does that mean? Many people have only a vague idea. They may know probate is a “government thing” that has something to do with Wills and estates and that it’s probably a costly process. But what they don’t know about probate can cause a drain on their estate in the form of higher probate fees and elevated income taxes that can significantly reduce their legacy. 

What these folks need – and you need, too – is a well-considered estate plan. And the first step is a clear understanding of what probate is and how it works.

·        Probate is the process by which a Will is validated by a court and is paid for through fees to your provincial government. In most provinces, probate fees are calculated on the fair market value of all the assets in your estate. In Quebec, probate is not required for Wills prepared by a notary, and for other types of Wills, the probate fee is a flat amount.

·        The rules differ from province to province, but probate fees generally apply to the entire value of your estate with no deductions for debts, although some provinces allow a deduction for mortgages on real estate.

·        There are also other expenses associated with probate including legal, accounting and Executor fees and these are typically based on the size of the estate and the amount of work involved.

·        While it’s true that probate is not a legal requirement, avoiding the process can be a costly mistake. In most cases, financial institutions will not release estate assets until the completion of probate. With certain exceptions, real estate can’t be transferred without a probated Will. If a Will that has not obtained probate is subsequently ruled invalid (by the discovery of a later Will, legal challenges, etc.) the Executor or any third party that erroneously paid out money or property can be held personally liable.

You can reduce probate costs and taxes by reducing the value of your estate through asset transfer strategies like these:

·        Assets held in joint ownership with the right of survivorship pass directly to the surviving owner when a joint owner dies and are not subject to probate. (The exception is Quebec where assets held in joint ownership are normally split equally between the deceased estate and the other joint owner.) Spouses often use this strategy, but keep in mind that transferring a part interest to your spouse may result in immediate capital gains tax consequences.

·        Distributing assets during your lifetime either directly or through a trust reduces the value of your estate, but can trigger a tax bill for unrealized capital gains and loss of control of the asset. 

·        Distributing assets through certain types of RRSPs, RRIFs and segregated funds offered by insurance companies, company pension plans and life insurance policies keeps them out of your estate. You name the beneficiaries and the transfer is direct. However, if the RRSP or RRIF beneficiary is someone other than your spouse, your estate will need sufficient funds to pay the income taxes owing on your death.

Your personal estate plan depends on your financial situation and the rules in your province of residence. Your financial advisor and lawyer can help ensure you structure your assets and estate to limit probate costs and taxes while maximizing your legacy.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant. Insurance products and services are distributed by I.G. Insurance Services Inc. (insurance license sponsored by The Great-West Life Assurance Company).