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Minimize Probate Fees

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Financial Planning -> Wills and Estates -> Minimizing Probate Fees, Joint Ownership of Assets

Should You Try to Minimize Probate Fees?

Probate fees or estate taxes (if any, depending on the province) are charged by the province in which the deceased resided, if the estate goes through the probate process.

The following items are excluded in determining the value of the estate for purposes of probate:

    1. assets held in joint tenancy with right of survival - when one person dies, the asset is automatically owned by the surviving joint tenant(s), as long as the joint tenants have beneficial ownership, not just legal ownership.
    2. assets with named beneficiaries or successor holders, such as life insurance policies, RRSPs or TFSAs.

Thus, probate fees can be minimized if registered assets (including vehicles) are held in joint names with right of survival (again, if beneficial ownership has been transferred), and if insurance policies, TFSAs and RRSPs are left to named beneficiaries (successor holder for TFSA), not to the estate.  It is necessary to use caution when naming beneficiaries to your RRSPs, because income tax will be payable by the estate on the market value of the RRSP at the time of death, unless the beneficiary is the spouse or common-law partner, financially dependent child or grandchild under 18 years of age, or financially dependent mentally or physically infirm child or grandchild of any age.  See How are RRSPs and RRIFs taxed at death, and Death of a TFSA Holder for more information.

In some provinces, having multiple wills can reduce probate fees.  One will can be prepared for the assets requiring probate, and a separate will can be prepared for the assets not requiring probate.  Talk to a lawyer or notary in your province for advice on preparing multiple wills.

Joint Ownership of Assets

Transferring any asset, including real estate, into joint tenancy with someone other than a spouse has many potential problems, especially when beneficial ownership is transferred as well as legal ownership:

bulletThe asset may be a target for creditors of the new joint tenant.
bullet The asset may be included in a divorce settlement of the new joint tenant.
bullet The new joint tenant shares control of the asset.
bullet The new joint tenant may be subject to capital gains taxes upon disposal of the asset.
bullet If the asset is real estate and is not a principal residence, capital gains taxes may be payable when the asset is transferred into joint tenancy.

Joint ownership of vehicles not only avoids probate fees, but may also make the transfer of the vehicle less complicated.  In BC, only the death certificate is required to transfer the vehicle to the surviving joint owner.  The Insurance Corporation of BC (ICBC) has a helpful Checklist for Estate Transfers (pdf).

When property is owned jointly with someone other than a spouse, it is wise to have a co-ownership agreement in place at the start.  See the Pushor Mitchell LLP article about the importance of co-ownership agreements.

Beneficial Ownership vs Legal Ownership

When a joint tenancy (joint ownership) is created, legal ownership is transferred to the new joint tenant, and beneficial ownership may also be transferred.  A "gratuitous" transfer is one where part ownership was transferred at no cost to the transferee.  When a gratuitous transfer is done, it is very important to state if beneficial ownership is transferred because if it is not stated, it is likely to be presumed that only legal ownership was transferred.  If beneficial ownership is transferred, the new joint owner has right of survivorship, so the asset is automatically transferred to them on the death of the other joint owner, without going through probate.  If beneficial ownership is not transferred, when the other joint tenant dies, the asset becomes part of the estate and will have to go through probate and be disbursed as per the instructions in the will.

A gratuitous transfer is often done by a parent with adult children.  In the case of a bank or investment accounts, it may be done so that the adult child can help manage the financial affairs of the parent.  In the case of real estate, including a principal residence of the parent, there may be many reasons this is done.  If a parent has more than one child or heir, and the property is transferred into joint tenancy with only one of the children or heirs, it is extremely important for the parent to put into writing the intention behind the creation of the joint account, indicating if the intention is to transfer beneficial ownership to the new joint owner, or just to have the new joint owner holding those assets temporarily, with eventual dispersal by the estate.  The lack of this type of documentation has resulted in many court cases.  The will should indicate whether jointly held assets that were gratuitously transferred are

bulletbeneficially owned by the other joint owner(s), with right of survivorship, so are not affected by the will; or
bulletnot beneficially owned by the other joint owner(s), and are to be disbursed as per the instructions in the will.

The BC Continuing Legal Education Society has two documents that are very useful on this topic:

     - Estates:  Out of the Ordinary Problems - Joint Tenancy - discusses beneficial vs legal ownership.

     - Tax Fundamentals for the Estate Practitioner: Lifetime Dispositions and at Death - General Principles

A Supreme Court of Canada case, Pecore v. Pecore, deals with beneficial vs legal ownership in a joint tenancy.  Paragraph 27 of the judgment states "The presumption of resulting trust is the general rule for gratuitous transfers."  This means that the transferee (new joint tenant) is a legal owner on title, but the only beneficial owner is the transferor, who made the gratuitous transfer.  When the beneficial owner dies, the property becomes part of the estate.  The presumption of resulting trust can be challenged, and where there is sufficient evidence that the gratuitous transfer was made with the intention that the transferee should also be a beneficial owner, then the "right of survivorship" stands, and the transferee will be the owner of the entire property when the transferor dies.  This was the result in the Pecore case.

See also Probate fees by province.

Tax Tips:

Be very careful to properly document the intentions of any joint ownership!

Make sure your will has very clear instructions for dispersal of your assets!

Get professional advice before transferring assets into joint tenancy!!!

Revised: February 25, 2017

 

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