Learn Strategies to Preserve Your Wealth, Enhance Your Quality or Life, Provide Peace of Mind,
and Avoid the Pitfalls When Retirement Planning in Canada
Assets of your estate that are passed on through your will and go through the probate process are subject to probate fees. Some provinces have a ceiling, and some don’t, so check with a lawyer or trust company in your community as to the current status in your province. When an executor asks the court to confirm or validate the executor’s right to deal with an estate, the executor applies for what is referred to as a “grant of probate”. This permits the executor to deal with the assets of the estate. When this formal confirmation is made, the probate fees are normally due. If the executor did not go through this legal confirmation process, many people, including regulatory or government agencies and banks, could refuse to recognize the executor’s authority. The reason for this is the concern that the will is invalid, or has been replaced by a more recent will. Even if no will exists, the courts must formally and legally confirm the authority of an administrator to administer the estate. The probate fee would still have to be paid in this situation.
There are ways to minimize the amount of probate tax paid, by removing assets from the estate. Clearly, if after professional consultation you choose to do this, you would want to leave sufficient assets or funds in your estate to settle it. These strategies have to be considered in the context of your overall estate plan. For example, part of your estate plan could be to place most of your assets beyond the reach of potential creditors, if you have a business. In theory, your estate could otherwise be at risk of attack by creditors. In addition, you may not want certain assets to remain in the estate, as they could be frozen pending the probate of the estate. Obtain professional advice from your lawyer, accountant and trust company on the various issues that concern you, such as: relinquishing control, your marital situation (separated or living common-law), children, tax consequences, legal or creditor considerations, and others).
Some of the key techniques of moving assets out of an estate before death (or automatically transferring them directly to a beneficiary at the time of death, thereby avoiding going through the will and probate), are:
register property jointly, so that it automatically passes to the survivor and not through the estate. (In other words, the asset will not be affected by the will.) Examples include a joint tenancy in real estate or a joint bank account.
designate beneficiaries on your insurance policies, RRSPs, RRIFs, some annuity programs, and employee pension plans. If you are designating beneficiaries, check to see if you can change the beneficiary during your lifetime easily, without the consent of the beneficiary. This could be relevant in case of a marital estrangement.
establish trusts during your lifetime to transfer title to property before your death. These are referred to as inter-vivos trusts.
As mentioned earlier, a key financial purpose of an estate plan is to keep taxes and expenses as low as possible and pay as much as possible to your beneficiaries. You don’t want to automatically make decisions just to reduce probate fees, when other strategies could better suit your overall objectives. For example, you may wish to consider other estate planning opportunities issues:
use a testamentary trust for income-splitting purposes for your beneficiaries. These types of trusts operate through your will provisions at the time of your death.
use the $500,000 capital gains deduction (or whatever part you have left available) for the sale of shares in a privately-held Canadian business by selling the asset to family members and thereby crystallizing the tax-free gain while you are still alive, and while this deduction is still available. Collateral documentation for you to retain control of the operation or management of the business could be negotiated and signed, including the remuneration package.
use strategies to protect certain family assets in a marital breakdown situation. This is relevant if you have married a second time and wish to protect the interests of the children of the first marriage, as well as the rights of your second spouse.
