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How to Avoid Probate: Navigating Estate Planning


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  • How to Avoid Probate: Navigating Estate Planning

Estate planning can be complex, but the estate planning process will be greatly simplified when you have clear goals. If your objective is avoiding probate, there are effective strategies you can use to avoid the probate process and probate fees.

With proper planning, you can take steps now to reduce or eliminate the need for probate after your death, simplify the estate administration process, and reduce tax implications. Read on for general tips on how to avoid probate.

At Onyx Law Group, we have a diverse team of lawyers, well-versed in the art of estate litigation and family law. For personalized legal advice, we welcome you to reach out to our team of estate planning lawyers. We’ve been in the industry for years and our client reviews speak for us. Reach out to us now to enjoy ease in family and estate law proceedings!

Understanding Probate

Understanding Probate

What is probate?

In British Columbia, the probate process is started by applying to the Supreme Court of British Columbia. By this legal process, the court formally approves the Will as the valid Last Will and Testament of the deceased and confirms the authority of the person named in the Will (the executor) to act on behalf of the deceased person’s estate.

Many people want to use estate planning strategies to avoid probate and the probate process. There are good reasons for avoiding probate. The probate process is public; the Will is no longer private when probate is needed. Probate increases the administrative costs that must be paid by the estate, which depletes the amount left to be distributed to the estate beneficiaries. The probate process can also take several months or years to complete, which means beneficiaries must wait to receive their inheritance.

Will your estate need to go through the probate process?

The type of assets you own and how you own them at the time of your death are the two main factors that determine whether your estate is subject to probate. Probate is a legal procedure that’s needed because third parties such as financial institutions, the Land Title Office, ICBC, and the Canada Revenue Agency have strict rules in place to ensure that a deceased person’s property is not transferred contrary to the law.

If your estate contains assets that are subject to probate (e.g., real estate, a bank account, or investments owned solely by you at the time of your death), the executor named in your Will must apply to the Supreme Court of British Columbia to obtain an estate grant—also called a Grant of Probate or letters probate. That confirms your executor’s authority to take over your assets and administer your estate (sell or transfer property, close bank accounts, etc.).

How much are probate fees and who pays them?

Probate tax is based on the overall value of your estate. In British Columbia, probate fees are based on the gross value of your estate that passes through the hands of your executor. There is no probate fee or court fee on the first $25,000 of estate assets. If your estate is worth over $25,000, there is a $200 court filing fee and probate fees are assessed as follows:

  • A rate of 0.6% applies to the value of estate assets between $25,000 and $50,000; and
  • A rate of 1.4% applies to the value of estate assets exceeding $50,000.

This works out to roughly $14,000 on each million dollars worth of estate assets. Your estate is responsible for paying probate taxes. See here if you would like to try out our probate calculator. It’s easy to see how probate fees can deplete an inheritance.

Arrange your assets and affairs to bypass probate

The good news is that there are ways to reduce probate fees in BC. In this section, we will talk about the top tactics for avoiding probate.

You can organize your assets during your lifetime so they aren’t subject to probate on your death.

Joint ownership

Joint ownership

Holding property or assets in joint tenancy with another person is a widely used tactic for avoiding probate fees. For example, you and your spouse may be joint owners of your home or other real estate, or you may add another person as joint owner of your bank account.

Joint property does not form part of your estate. Instead, joint tenants share the right of survivorship. When one of the joint tenants dies, the property held in joint tenancy automatically goes to the surviving joint owner. Assuming there is only one joint owner surviving you, that other joint owner takes full ownership of the property, without paying probate taxes or property transfer tax.

Joint tenancy is a simple and effective strategy for avoiding probate, but it also comes with risks you must be aware of. Creditors of any of the joint owners can go after the asset. There can be unintended tax consequences when property is transferred in joint names. You will need to consider what happens to the outstanding mortgage if you are considering adding joint names to real property. All of the pros and cons need to be discussed before deciding if joint ownership is the right strategy for you and your loved ones.

Trusts

You can transfer assets or property into a trust during your lifetime. Property held in a trust does not form part of your estate and probate is not needed for assets held in trust. For example, you can set up a trust for your children or grandchildren, you can create a trust to benefit a disabled loved one and protect their eligibility for government benefits (called a disability trust), or you can establish an alter ego trust or joint partner trust to benefit yourself, your spouse, and eventually, other named beneficiaries.

Many people hesitate when it comes to trusts, finding the concept and the various types of trusts confusing and overwhelming. Others think that trusts are only for the very wealthy. While it is true that there are costs associated with creating and maintaining a trust, the reality is that trusts can offer advantages for small and large estates alike. The concept of trusts can be demystified with the right professional advice from legal counsel.

Gifting assets before death

As we discussed above, when property passes through your estate, probate tax applies. If property or other assets are given away during your lifetime, they will not be estate assets when you die. So, for example, you can gift personal property (vehicles, art, jewelry), money, or real estate to your loved ones while you are alive. The recipient of the gift then owns the property and it’s not an estate asset subject to probate tax.

Again, there are pros and cons of gifting assets. Unlike with property held in trust, you lose control of property that you gift outright. There can also be tax implications depending on the type of asset and who you transfer it to (e.g., property transfer tax when you gift a home to your child). Questions may arise if you gift property or other assets (e.g. a down payment) to a child who later separates from their spouse—your child may lose what was supposed to be their inheritance if the intention with respect to the gift is not properly documented.

Beneficiary designations

Beneficiary designations

Assets like life insurance, employer pension plans, and registered accounts such as RRSPs, RRIFs, and TFSAs allow you to designate beneficiaries. When you designate beneficiaries in these types of assets, the asset bypasses probate. The asset goes directly to the designated beneficiary or beneficiaries you named, without forming part of your estate.

For example, the proceeds of life insurance policies are paid directly to the designated beneficiaries. Probate fees would only apply if the proceeds of any insurance policies are made payable to your estate, or if the named beneficiary dies before you and no alternate is named.

A key concern when using beneficiary designations is to ensure that they align with your overall estate plan. There is the potential to inadvertently disinherit someone or disproportionately benefit someone. If your main assets are assets that go directly to the designated beneficiary, there may be little remaining assets in your estate to be divided among beneficiaries named in your Will.

There can also be tax consequences if registered accounts such as RRSPs are left to someone other than your spouse. The fair market value of the RRSP at the time of your death will be considered income of your estate and must be declared on the income tax return for the year of your death.

Multiple Wills

You can prepare and execute multiple Wills. One Will deals with assets and property that must go through the probate process, and the other Will deals with private company shares or certain other types of property. The assets passing via the second Will do not need to go through the probate process, which saves probate fees.

Simplifying your estate

As noted above, there is no probate fee or court fee on the first $25,000 of estate assets. If your estate is worth less than $25,000, your estate will not have to pay probate tax or other administrative costs, even if probate is needed to deal with the remaining assets of the estate. Using a combination of strategies, including the ones discussed herein, it may be possible to reduce the overall value of your estate and simplify your affairs to avoid probate fees.

Importance of professional advice and regular updates

Importance of professional advice and regular updates

Professional advice from an estate planning lawyer and financial advisor is essential to good estate planning. There are advantages and disadvantages that you must understand before deciding on an estate plan. Professional advice ensures you are making the right choices.

It’s also important to review your estate plan at regular intervals and after any major life events (birth of a child, marriage, separation or divorce, remarriage, death of named beneficiary, starting a business, etc.). Regularly reviewing and updating your estate plans will ensure that they reflect current laws and your personal circumstances.

Questions about how to avoid probate?

It is worth your while to do some estate planning now to protect your loved ones in the future. With proper planning, it may be possible to arrange your affairs so that your estate can be processed without the need for a probate application. A good estate plan can reduce or defer tax consequences your estate must otherwise pay and minimize the impact of probate fees on your estate and your beneficiaries.

That being said, probate fees may not be as burdensome as you think, and there are risks and considerations other than probate fees to be taken into account when deciding on the most efficient estate plan for you and your loved ones. There are legal, practical, and tax implications of transferring assets to avoid probate that you must understand before making any decisions.

For more information or to discuss questions concerning a probate, estate planning, or an estate administration matter, reach out to Veronica Manski, Probate and Estate Administration Practice Leader at 604-416-4403 (Vancouver) or 236-420-6400 (Kelowna) or vmanski@onyxlaw.ca.

We can help you achieve your estate planning goals as efficiently as possible, regardless of the complexity or issues presented by your estate.

Have questions about a topic?

Onyx Law Group represents clients in family law, estate and trust litigation, estate planning and probate matters. Consult with our experienced team at 
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