4 Easy (and 1 difficult) Ways to Reduce Probate Fees In Canada
Tuesday, December 12, 2023
4 Easy (and 1 difficult) Ways to Reduce Probate Fees In Canada
Tuesday, December 12, 2023
Mitch Zaba
Nearly all Wills in Canada go through probate. Probate is the process of the courts formally accepting your Will and providing permission to the Executor to carry out your Will's instructions.
Imagine this scenario without probate. Your sister suddenly passes. Before your sister passed, she share with you a copy of her Will she recently signed two months ago. In her Will, you are entitled to all of her savings at her bank. You go to the bank, present your sister's Will, provide a valid identity to the teller, and request the money. The bank informs you that this money has already been paid out to your brother because he too brought in a copy of your sister's Will. However, his copy was signed 6 years ago.
The bank has no idea if a Will is valid, or the most recent copy as Wills are infrequently changed. By forcing Wills to be accepted by the courts, the court provides assurances that the proceeds of the Will are being paid to the correct individuals or charities.
A Will covers the distribution of your assets, personal belongings, heirlooms, payment of debts, custody of children, and charity donations.
At the same time you set up a Will, you can also set up a Living Will which will allow for decisions to be made on your behalf should you become incapacitated for health reasons. This is done by appointing a Power of Attorney(s)
Probate Fees in Canada
All provinces vary when it comes to probate fees. Some courts charge a percentage of assets that pass through probate while some courts charge a flat fee.
Example:
Manitoba doesn't charge probate fees while Nova Scotia charges $16.95 per thousand on estates greater than $100,000. That means a Nova Scotian would pay $8,475 on an Estate worth $500,000.
That's why it's important to plan to reduce probate fees while you're still living.
Ways To Reduce Probate Fees
Name Beneficiaries
For life insurance policies and registered accounts like your TFSA, RRSP, RRIF, and pensions, you can name beneficiaries. This way the asset, usually cash, get's paid directly to your beneficiary rather than passing through your estate and triggering probate fees. The nice thing about naming beneficiaries is they can be changed at any time without redoing your Will.
Joint Accounts or Tenancy with Rights of Survivorship
By naming a second person your account or asset with rights of survivorship means the account or asset will automatically pass to each other on death. This is most common when is comes to married or common-law partners. The house, bank accounts, and any non-registered accounts are usually set up with the right of survivorship so the account automatically passes to the surviving spouse without going through probate.
Some people would go to the extent of naming children as joint owners of their house. While this would avoid probate, your house could be exposed to severe and unintended situations like your child's divorce or debt collection.
Gifting Assets While Alive
With the help of an accountant, you could gift assets to your beneficiaries while you're still living. The assets you would gift would be ones you don't plan on using for your retirement. Be cautious that you don't accidentally create a taxable situation for yourself when doing this.
Survivorship Clause
You could write into your will a survivorship clause which states that a beneficiary must survive your death by 30 days (for example). If you died, your assets would be passed to your beneficiaries. Probate would be paid. Then 4 days later your beneficiary dies. Probate will be paid yet again. With the survivorship clause, you could avoid a second probate fee on the same asset.
Trusts
Transferring your assets to an inter vivos trust can be a smart strategy to reduce or even eliminate probate fees. Since the transfer occurs while you are still alive, the assets will not be considered part of your estate and can bypass the probate process. There are two types of inter vivos trusts that you may consider setting up once you reach 65 years old; "Alter ego" trusts and "Joint Partner" trusts.
Trusts can be expensive to set up and should be carefully considered if your assets justify the cost..
Conclusion
Now, you must have realized that a Spousal RRSP isn't just a retirement savings plan; it's your secret weapon against the taxman. It ensures you and your spouse enjoy your golden years without those pesky tax clouds.
So, whether it's sipping margaritas on a beach or collecting stylish retirement hats, remember that with a Spousal RRSP, your financial future shines brighter. It's the retirement plan that says, "Cheers to a tax-light retirement!"
Hi, I Am Mitch Zaba
Over the past 10+ years, we've worked closely with clients showing them how to grow their wealth, pay less taxes and how to create predictable passive income in the stock market.
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