by: Veronica Manski
The simple answer is time and money. People think probate takes a long time, and costs a lot of money. Many people believe they should go to great lengths to avoid probate, in order to save the estate a substantial amount of time and money. This is only possible if there has been careful and effective estate planning and the circumstances are appropriate to avoid probate. What many people fail to realize is that estate planning is not simple. A simple inadvertent transfer of property or an out-of-date beneficiary designation could trigger probate or result in costly litigation. Estate plans carried out without legal advice often cost significant time and money to fix instead of resulting in savings. Overcomplicated estate plans or “governing from the grave” can also leave the estate with huge tax bills.
What is probate?
Probate is a court process to validate the Will and authorize a representative to act on behalf of and carry out the administration of the estate. Depending on the circumstances, the application process may be short or long and may require the estate to incur significant legal costs. The province also charges a fee (equal to roughly 1.4%) on the gross value of estate assets. For this reason, many wealthy individuals make plans to avoid probate at all costs.
It is important to note that there is no legal requirement to obtain a Grant of Probate. In practice, a Grant of Probate tells institutions such as banks, the Land Title Office and ICBC that the appropriate person is acting on behalf of the estate and is responsible for the liabilities of the estate and the deceased. It is an important security measure. Accordingly, institutions have their own policies that require the presentation of a Grant of Probate before assets can be transferred or paid out. The general rule of thumb is that if an asset is valued at more than a few thousand dollars (it varies by nature and institution) then the institution or shareholders of a corporation, will require the presentation of a Grant as an extra step or level of security. The Land Title Office is very strict about requiring a Grant of Probate for any transactions concerning real estate held solely in the name of the deceased or as a tenant in common. There is no exception to the rule; the deceased’s personal representative must obtain a Grant of Probate in order to transfer the property (or any interest).
Avoiding the probate process vs. fees
There are several ways to avoid the probate process. Holding assets jointly is by far one of the simplest and most common methods. If an individual owned property jointly with a deceased person (i.e. they held title to property as joint tenants), then the survivor can file a document with the Land Title Office asking for title to be changed or “transmitted” into their sole name, upon producing an original copy of the deceased’s death certificate. A Grant of Probate is not required. However, the process is complicated if the deceased’s true intent was not for the survivor to gain or retain complete beneficial ownership of the property. In some circumstances, the deceased may have intended for the survivor to hold their beneficial interest in trust for the deceased’s estate so that all beneficiaries of the deceased’s will would share the property. A bare trust agreement or declaration is often executed to evidence this intention. In such cases, the survivor is found to hold the beneficial interest in the property in trust for the estate, which asset is then subject to probate fees as an estate asset even if legally owned by the survivor. If all assets owned by a deceased person were held jointly, then probate is likely not required, but where one or more assets were not held jointly, probate will be required and all of the assets will be subject to payment of probate fees.
The most common mistake we see when this strategy is employed is a failure to transfer all assets into joint tenancy or joint ownership. Quite often it’s the car or a long-forgotten bank account with only a few thousand dollars sitting in it. This mistake triggers probate and the requirement to pay probate fees on all of the estate assets. Keep in mind there are still benefits owing to the fact that the jointly held assets are still immediately transferable into the name of the surviving joint owner and can be pooled in the estate account or listed for sale, before a Grant of Probate is obtained.