Avoiding Probate Fees

Probate fees are a Provincial Government fee that is payable when an estate is “probated”. The Probate fee is approximately 1.4% of the gross value of the estate. Probate involves a court application whereby the court reviews the Will and supporting material to ensure the Will complies with the formal requirements of the law of B.C. and that notice has been given to those persons with a potential claim under the Wills, Estates and Succession Act. Most financial institutions, investment brokerages and government agencies will require probate prior to a transfer of assets of the deceased.

So how do you avoid probate? There are few options:

1. Give everything away before death. Although I say this somewhat tongue in cheek it is a strategy that can be utilized, the timing can be a bit challenging!
2. For registered plans (RRSPs TFSAs and RRIFs) and insurance policies, you can name a beneficiary.
3. You can put property into joint tenancy. We only recommend this for older clients or for clients that have a life threatening injury or illness. For example, if mom is in her 80s and owns a principal residence and a bank account, one or all of the children could be added to title of the property and the account as “joint tenants”. It is important that a “trust” document is prepared stating that the adult children hold their interest “in trust” for mom. Upon mom’s passing the children then hold their interest “in trust” for mom’s estate and the assets are distributed as provided for in mom’s Will. The distribution can be done without going through probate and therefore avoids probate fees.
4. A more complicated solution is to transfer assets into an “alter ego” or “joint spousal” trust. These trusts are mostly used when someone is 65 years of age or older and has significant assets. For a “joint spousal” trust only one of the spouses needs to be 65 years of age or older. All types of assets including real estate, investments, and bank accounts can be transferred “tax free” to a trust if you or your spouse are 65 years of age or older. Even a principal residence can be transferred to the trust and it remains exempt from capital gains when sold.

The person(s) creating the trust are referred to as the “Settler(s)”. When the Settler dies, or the last of the Settlers in the case of a joint spousal trust, there is a deemed disposition of the assets in the trust and therefore taxes are payable on any capital gains accruing from the date the assets were originally acquired by the Settler(s) and any income.

The trust provides that the income and capital can only be used by the Settler(s) during their lifetime. The trust also provides for distribution of the assets upon the death of the Settler or in the case of a joint spousal the last of the spouses. The assets are distributed under the trust and not through a Will and therefore there are no probate fees.

This structure can be quite complicated and the above description is necessarily incomplete so please consult with an estate planning professional on any of these strategies.