Where There's a Will: Strategies to Reduce Probate Fees
If you've been named as someone's executor in their will, you may have heard the term "probate" being tossed around. But what does probate actually refer to?
Simply put, probate is a court process that confirms the validity of a will.
Some people think that probate is what gives an executor the authority to distribute the assets of an estate. This is technically not true. An executor gets their authority from the will that appoints them. In fact, sometimes probate isn’t even necessary in order to distribute an estate.
But sometimes third parties, such as financial institutions, ICBC, or the Land Title Office, want assurance that the executor has the authority to deal with a particular asset in an estate. So, they'll require that the executor go through the probate process to validate the will and confirm that the executor does in fact have the authority to administer the estate.
How Much Does Probate Cost in British Columbia?
If probate is required, the entire value of estate assets located within British Columbia is subject to probate fees. The fee is currently 1.4% for the portion of an estate in excess of $50,000, and 0.6% for the portion of an estate valued between $25,000 and $50,000.
The "value" of the estate refers to the gross value of the deceased's real and tangible personal property located within British Columbia. If the deceased was a British Columbia resident just before they died, it also includes their intangible personal property, regardless of where they are located.
How Can Probate Fees Be Reduced?
Part of the estate planning process involves reducing the amount of probate fees an estate will have to pay. Often, this is done by keeping assets outside of the estate that will become subject to probate. Below, we’ll touch on some strategies that can achieve this.
Assets held in joint tenancy with a right of survivorship pass automatically to the surviving joint tenant, which means that asset passes outside of the estate.
This applies to your home (for example, if you are listed on title with your spouse as joint tenants), vehicles registered in joint names, joint bank accounts, etc.
Now, this doesn’t mean you can start adding all your kids and grandkids onto your various assets as joint tenants. If a joint tenant happens to be someone other than your spouse—a child, for example—then whether or not the property automatically passes to that person will depend on the individual circumstances of the case. Often, if you hold an asset in joint tenancy with a child, it is presumed to be held in trust for the benefit of the estate, as opposed to being automatically passed to the child. The details of how this works is beyond the scope of this article, but the key point is that joint tenancies with anyone other than a spouse are not always straight-forward.
Certain investment accounts (including RRSPs, TFSAs, and pension plans) allow you to name a designated beneficiary to receive the funds held in your account upon your death. This allows the asset to be paid directly to that designated beneficiary and, therefore, pass outside of your estate. Some insurance products (such as life insurance policies and segregated funds) also allow you to name a designated beneficiary.
Another benefit of this is that designated beneficiaries tend to get paid out much quicker than beneficiaries of an estate. Often, it can take one year or more to finalize an estate and distribute assets to beneficiaries. On the other hand, designated beneficiaries often get paid out within a couple of months.
If you choose to name a designated beneficiary, we always recommend naming a primary beneficiary (the person who will be first in line to receive the assets in the account) and also a contingent beneficiary (the person who is next in line if the primary beneficiary has predeceased you).
While it’s common to have one will covering all of your assets, there are some situations in which multiple wills could be appropriate. For example, in order to reduce probate fees and protect the privacy of business holdings, you can prepare two wills, one covering the assets that will likely require probate (such as deposits held by financial institutions or your house) and the other covering shares of your company (which does not typically require probate).
Multiple wills may also be useful when there are assets located in other jurisdictions, especially if the other jurisdiction has lower probate fees (this is good news for those with real estate in Alberta, where probate fees are capped at $400!).
Because probate is a complex issue involving legal procedures and variable fees, it’s always a good idea to talk to a lawyer who has experience in estate planning and administration matters. A good legal advisor can help you develop a strategic estate plan to avoid probate where appropriate and reduce the overall burden of probate fees on your estate, leaving more of your assets behind for your loved ones.