What is Probate?

Probate is an application to obtain court confirmation of the validity of a Will and the authority of the executor of the Will. The application is made by filing at least two affidavits and certain other documents with the court registry. If the court approves the application and the probate fees are paid, it will issue a Grant of Probate. A more complicated procedure is required if the will is or may be disputed.

Probate usually becomes necessary because 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.

An executor’s authority, however, comes from the Will and not a Grant of Probate. There is, therefore, no requirement that every Will be submitted to probate. In fact, with proper planning, many estates can be processed without a probate application, saving thousands of dollars in probate fees. Click here to find out about some of the strategies to achieve this.

Here are some more facts about probate:

• probate fees are actually a tax

• application fee of $208, then 0.6% of estate value between $25,000 and $50,000, and 1.4% of estate value over $50,000

• fees payable on entire value of estate assets within BC (less only registered mortgages), even if probate only required to deal with only one asset

• if no will, application is for a Grant of Administration rather than a Grant of Probate (same probate fees apply)

• usually application made in “common form”

• application in solemn form may be required if will is disputed (involves a trial)

Executors – A Checklist of Immediate Duties

• Locate the last Will and confirm appointment as executor.

• Determine whether there are any special funeral directions.

• Ascertain whereabouts of beneficiaries.

• Determine immediate cash requirements of beneficiaries.

• Search for cash, insurance policies, securities, jewellery, and other valuables, and arrange for their safekeeping.

• Cancel credit cards, memberships, health insurance, cable and subscriptions and request refunds if available.

• Lock up the deceased’s residence if it is not occupied. Advise the police if it is not under proper supervision.

• Arrange for an immediate inventory of all personal assets.

• Check the insurance on the deceased’s assets (e.g., house, furniture, motor vehicle). Check the expiry dates and check the vacancy provisions to ensure that the coverage continues (a 30 day vacancy limit applies in most policies insuring residential property). Notify the insurers of the death.

• Arrange for interim management of the deceased’s business.

• Collect and deposit any outstanding cheques (e.g., pensions, dividends, interest, salary).

• Redirect mail if necessary.

• Check for mortgages (and determine if they are life-insured) and agreements for sale and make the payments to keep them up to date.

• Check leases and tenancies. Give tenants notice about where to send rent payments and give notice of termination if necessary.

• Review the last cheques written by the deceased to ensure that there were no irregularities.

• Apply for Canada Pension Plan Death Benefits, Survivor’s Benefits and Orphan Benefits, if eligible.

These suggestions apply to many estates but they may not all apply to the estate that you are administering. There may be other assets that require protection and that aren’t dealt with above. Please contact our office if you have any questions.

Strategies to Avoid Probate Fees

What are Probate Fees?

Probate fees are payable to obtain a Grant of Letters Probate (or, if there is not a Will, Letters of Administration). Letters Probate means the court has confirmed the validity of a Will and the authority of the executor of the Will. An executor’s authority, however, comes from the Will and not the Letters Probate. There is, therefore, no requirement that every Will be submitted to probate. In fact, with proper planning, many estates can be processed without a probate application, saving thousands of dollars in probate fees. Some of the strategies to achieve this are discussed below.

“with proper planning, many estates can be processed without a probate application”

Probate usually becomes necessary because 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. If probate is required, the entire value of estate assets located within B.C. is subject to probate fees. This is true even if probate is required because of only one asset, such as a car or term deposit.

The fee is 1.4% of that portion of an estate in excess of $50,000 of value, and 0.6% for that portion of an estate valued between $25,000 and $50,000. For example, the probate and filing fees for an estate worth $250,000 are just over $3,000.

Strategies to Reduce or Avoid Probate Fees

The following strategies can be used to reduce or avoid probate fees:

Gifts Prior to Death

You can reduce the value of your estate by giving assets away prior to death. Certain legal requirements must be met for the gift to be valid. For example, you must actually give up control of the gift. You should also remember that if the fair market value of the gift exceeds its cost, the accrued gain may be subject to tax. Gifts of real estate may also require payment of property transfer tax.

Joint Tenancy

Property can be owned jointly in two ways: joint tenancy or tenancy in common. On the death of one joint owner, property held in joint tenancy normally passes by right of survivorship to the surviving joint owner(s). It is normally not considered part of the estate of the deceased joint owner, can be transferred without probate and is not subject to probate fees.

However, joint tenancy, especially when not between spouses, may have disadvantages, including the following:

• loss of control – co-operation of the other joint owner will be required to sell or mortgage the property;

  • future litigation – if the surviving joint owner is not the only beneficiary of the estate of the deceased joint owner, the other beneficiaries may claim that the surviving joint owner holds the property in trust for all of the beneficiaries while the surviving joint owner may claim that the right of survivorship applies. This is most common where the deceased joint owner is a parent and the surviving joint owner is a child, and there are other children;

  • tax consequences – capital gains tax and property transfer tax may become payable when property is transferred into joint tenancy. If the property is a principal residence and the new joint owner does not live there, that owner’s share of any future increase in value of the home will not be exempt from capital gains tax;

  • exposure to creditors – joint property may be subject to claims by creditors, or the spouse, of the other joint owner;

  • death of joint owner – the new joint owner may pass away before the original owner;

• the new joint owner can sever the joint tenancy, and create a tenancy in common, without notifying the other owner.

As well, recent decisions of the Supreme Court of Canada have changed the law regarding the transfer of property by a parent into joint names with their child. In these cases the law presumes that a child who contributed nothing toward the property holds his or her interest in trust for the contributing parent. An exception is the presumption of advancement (meaning that the transfer will be presumed to be a gift). However, the presumption of advancement only applies to transfers of property from one spouse to both spouses, or from a parent to a minor child.  The 2007 decisions of the  Supreme Court of Canada in  Pecore v. Pecore and Madsen Estate v. Saylor have stated that the presumption of advancement does not apply to transfers between parents and adult children.  An adult child who holds assets jointly with a parent can no longer rely on the presumption that the parent wanted the child to take the asset at death. Additional evidence is required to prove that a transfer into joint tenancy was intended to be a gift and that the survivor was intended to receive the asset on the death of the deceased.

For more detailed information about the pros and cons of joint tenancy, click here.

Multiple Wills

Thanks to a recent change in BC’s estate laws, business owners can now reduce the amount of probate fees payable by their estate by utilizing a second will.  The articles of most private companies allow for the transfer of a deceased shareholder’s shares to the estate without probate.  However, if probate is required because other assets were owned solely by the deceased (such as a vehicle, bank account or real estate), the company shares must be listed in the probate application and will be subject to probate fees.  If the company shares are dealt with in a separate will, probate fees for the shares are avoided.  In addition to business owners, individuals with expensive art collections can also use this strategy, by having a second will for their art collection.  To benefit from a second will, you must appoint a different executor under each will.

Corporate Debt

Probate fees are based on the gross value of estate assets (except for real estate for which the amount of outstanding mortgages may be deducted). Outstanding debts, other than mortgage debts, are not deducted to determine the value your estate. If you purchase an asset with borrowed money that is not secured by a mortgage, transferring the asset and the debt to a limited company will reduce the gross value of your estate. The asset and the debt are no longer owned by you, but by your company. While the company’s shares will be part of your estate and subject to probate fees, the share value would be the value of the asset less the debt to acquire the asset.

Named Beneficiaries

Designating a beneficiary under insurance policies, RRSPs, RRIFs, TFSA’s and pensions will allow the proceeds to be paid directly to the named beneficiary. The proceeds will not form part of your estate and are not subject to probate fees. Probate fees are only payable if the proceeds are payable to the estate, or if the named beneficiary dies before you. In some cases you may want to designate an alternate beneficiary to avoid the proceeds being paid to your estate.

Property Transferred to a Trust

A trust can be created to hold property on your behalf, with provisions providing for the distribution of the property after your death. Because the property is owned by the trust, it is not considered part of your estate, and is not subject to probate fees. Trusts are generally taxed at high rates and the cost of creating and administering the trust may be prohibitive. However, two new types of trusts, called alter ego and joint spousal trusts, are now available thanks to recent changes to Canada’s Income Tax Act. For more information, click here for our article on these new trusts.

These strategies will result in probate fees being reduced or avoided. However, caution must be exercised to ensure that unintended or undesirable consequences do not outweigh the savings in probate fees. As well, any strategy should only be considered in the context of an overall estate plan.

For more information on this or any other estate planning issue, please contact us at your convenience.

Estate Law Considerations: Executors Proceed Cautiously

Here’s What We’d Hope For

If we must die, we’d like:

• things to be organized and simple, so we can enjoy our final days with family or friends.

• our assets to transfer smoothly to our chosen family, friends, or charities.

• to save costs, if we can.

Probate Is Not Always Required

If your spouse survives you and is your primary beneficiary (or with a very simple estate), the transfer of your assets to your spouse can be easily achieved with proper planning. Minor legal assistance may be needed. The survivor spouse’s Will, Power of Attorney and Health Care Agreement may also need to be updated at this time, or new planning considered to efficiently pass the couple’s wealth to the next generation.

For the executor of a person who made their will at Beacon Law Centre, a free consultation is available to clarify the steps to follow.

When Probate Is Needed

When the last of two spouses dies (or with more complex estates) a BC Supreme Court Order, called a “Grant of Probate” (or “representation grant”), may be needed to handle the Estate. Here, the executors really should seek legal assistance in carrying out their responsibilities.

Liability Concerns Arise

Probate involves a variety of complex laws. While your executor may be bright and confident there is a high risk of personal liability if the estate incurs financial losses (even if mistakes are made innocently). Common risky behaviours exhibited by lay executors include:

• Starting to deal with the assets and then deciding not to act as executor.

• Failure to act impartially in the distribution of personal items.

• Failure to identify all the assets.

• Failure to identify (or pay) a liability before distributing funds to beneficiaries.

• Keeping risky or unauthorized investments, or failure to adequately insure property.

• Failure to include the proper parties in the Probate process.

• Failure to adhere to legally required time limits on distribution.

• Distributing without appropriate waivers or releases from beneficiaries.

• Failure to keep proper records and account adequately to beneficiaries or creditors.

• Errors in the handling of income tax matters.

• Paying out Executor fees without the proper approvals.

• Often, executors who are family or friends don’t discover that their handling of the matter was problematic until it is too late.

Family Strife Problems

When Probate is necessary, it will take several months to administer the Estate, even when the Executor is advised of all of the steps and is extremely efficient. Beneficiaries are often unaware or not sympathetic about the work required, and can be critical of the executor and the timeline and costs of proper administration. For this reason, some will-makers choose a friend or a professional advisor as executor in an attempt to preserve the relationships between their children. Others encourage their family member executors to engage an estate lawyer, to help them to avoid errors and give the others a further assurance that the estate is being well handled. We encourage our clients to think critically about their choice of executor.

Choice of Executor

The role of executor is not for the faint of heart, nor for the ’emotional one’ in the family. The most successful executors are objective and careful. They don’t let paperwork accumulate on the desk corner. They figure out what work to delegate, and what work to do themselves. They are not baited by petty displays or poor behavior, and will patiently and calmly rise above unwarranted criticism. So, look for these characteristics in choosing your executor.

Executor Fees

When Probate is involved, the person who acts as executor will nearly always decide to charge an executor fee because so much work is required. The fee (payable from your assets and regardless of who acts as executor) is usually in the range of 2% to 3.5% of the value of the estate assets. The maximum allowed (for disputed or complex estates, and also for small estates) is 5% of the value of the estate assets.

Too much emphasis is placed on avoiding or minimizing executor fees. Given the work involved, some kind of compensation is appropriate. The law has checks-and-balances to ensure the amount is reasonable. It is a much lower amount than the real estate commission payable when a house is sold, even though the executor’s duties often last for one or more years. Rather than worry about an executor fee — worry about choosing the right executor!

Opportunities and Action Steps

We advise to keep your will and other estate planning documents up to date, and to encourage your beneficiaries to do the same. Also, if your spouse or main beneficiary dies, update your documents and explore new ways to provide for your beneficiaries. The efficient passage of wealth from one generation to the next is a matter of being well informed and well organized. Contact Beacon Law to discuss further.

Joint Tenancy as an Estate Planning Tool – Pros and Cons

Estate planning means different things to different people, but most people agree that some of the goals of estate planning include:

• Simplifying the administration of an estate

• Minimizing probate fees

• Ensuring that property passes to the intended person

One of the most common strategies used to achieve these goals is to own property with another person in a joint tenancy.

Joint tenancy or tenancy in common Property owned by more than one person must be owned in one of two ways: joint tenancy or tenancy in common. In practical terms, the chief distinction between joint tenancy and tenancy in common is the right of survivorship. Only joint tenants can enjoy right of survivorship.

If you own property with another person as tenants in common, on your death your interest in the property becomes part of your estate to be passed on according to your will. If you own property with another person as joint tenants, on your death your interest in the property normally passes to remaining joint tenant(s) by right of survivorship, and does not form part of your estate.

In British Columbia, the law presumes that an asset (other than land) held in two or more names is owned as a joint tenancy, unless there is an indication that the owners own it in shares. So, for example, household goods, vehicles, bank accounts and investments owned by two or more persons will be presumed to be owned by them as joint tenants, unless their respective shares of the assets are specified or there is a statement that the asset is held by the owners as tenants in common.

However, in the case of land the common law presumption of joint tenancy has been altered by statute, so that land owned by two or more persons is presumed to be owned by them as tenants in common unless the title expressly states that they are joint tenants.

Right of Survivorship Because of the right of survivorship, a joint tenancy can meet the estate planning goals of simplifying the administration of an estate, minimizing probate fees and ensuring that property passes to the intended person. It is a strategy used by the majority of married couples, who own their major assets, such as their home, as joint tenants. The right of survivorship ensures that when the first spouse dies, these assets pass to the surviving spouse without being subject to the delays and expense of an application for probate (with a little extra planning, it is often possible to avoid probate altogether on the death of the first spouse). The right of survivorship also ensures that ownership of the assets will not be affected by claims under the Wills Variation Act, if there is a will, or by the rules for intestate distribution under the Estate Administration Act, if there is no will.

Beware of the Consequences While joint tenancy is most common between spouses, it is becoming increasingly common between parents and children. The purpose is the same – to simplify administration of the parents’ estates and to minimize probate fees. Often the joint tenancy is created after the death of one of the parents. However, this can result in some unintended and undesirable consequences. Consider the example of a parent who has transferred her assets into a joint tenancy with one of her adult children:

Loss of control The parent cannot later cancel the transfer if she changes her mind. As well, in the case of land, she will not be able to sell or mortgage the land unless the child also signs.

Income tax The transfer is a disposition for income tax purposes. The 50% interest in the property transferred to the child is deemed to have been sold at its fair market value and, unless the asset is the parent’s principal residence, a portion of any capital gains will be added to the parent’s income. This could result in the parent having to pay tax even though she received no payment from the child. In addition, one half of any future capital gains will accrue to the child. If the property is the parent’s principal residence and the child lives elsewhere, the principal residence exemption will be lost for the child’s share of any future increase in value of the home.

Property transfer tax In the case of land, property transfer tax will be payable at the time of transfer, although there may be an exemption available if the property is the principal residence of either the parent or the child.

Exposure to creditors The child’s interest in the property will be subject to claims by the child’s creditors. If the child is married and the property is used for a family purpose, it could be subject to claims by the child’s spouse if there is a breakdown of the child’s marriage.

Death of The child may pass away before the parent, negating the purpose of the joint tenancy. If other children were also on title with the parent as joint tenants, on the death of the parent the asset would pass only to the surviving children, and the family of the deceased child would receive nothing.

Blended Families Another unintended result can occur if spouses in a second marriage own property together as joint tenants, and each have children from previous relationships. On the death of the first spouse, the property will pass by right of survivorship to the surviving spouse. The spouses may have had wills that provided that the property would ultimately pass to the children of both spouses, on the death of the last of them. However, the surviving spouse can change his or her will so that the property goes only to that spouse’s children, and the children of the deceased spouse would receive nothing.

Resulting trust The law presumes that a joint tenant who contributed nothing toward the property holds his or her interest in trust for the contributing owner. An exception is the presumption of advancement (meaning a gift in advance of a person’s death). According to case law, the presumption of advancement applies to transfers of property from one spouse to both spouses, or from a parent to a minor child.

However, in 2007 the Supreme Court of Canada stated (in the Pecore and Madsen decisions) that the presumption of advancement does not apply to transfers between parents and adult children. An adult child who receives an asset by right of survivorship from a deceased parent can no longer rely on the presumption that the deceased wanted the child to take the asset at death. Additional evidence is required to prove that the transfer into joint tenancy was intended to be a gift and that the surviving child was intended to receive the asset on the death of the parent.

The Pecore and Madsen decisions also raised the possibility that the right of survivorship itself could be gifted from one person to another. This presents several unanswered questions, however, such as the tax implications of such a gift. As well, it is not clear whether the gift of the right of survivorship applies to real estate.

Put it in Writing To avoid the possibility of a dispute with other family members, and to clarify the tax consequences, it is now imperative to put the parent’s intention into writing. If the transfer to joint tenancy would not result in capital gains tax, or the parent is prepared to pay the tax, the parent could sign a deed of gift to confirm that beneficial ownership in the property is transferred to the parent and child as joint tenants with right of survivorship. On the parent’s death, it would be difficult for other beneficiaries to argue that the child holds the property in trust for the parent’s estate. Alternatively, the parent could require the child to sign a declaration of trust confirming that the child does not have beneficial ownership in the property, but simply holds his or her interest in trust for the parent. In addition to reducing the possibility of a dispute between the child and the other beneficiaries of the parent’s estate, the declaration provides the parent with a greater amount of control over the property, and may prevent the deemed disposition of the property for income tax purposes (because beneficial ownership of the property remains with the parent). However, Canada Revenue Agency (“CRA”) has suggested that the existence of a declaration of trust will not, in and by itself, be conclusive evidence that beneficial ownership of the property has not changed. It would depend on all of the circumstances. CRA’s position is that if legal title to an asset is transferred from a parent to the parent and a child, but beneficial ownership remains with the parent (as confirmed by the declaration of trust and other circumstances), a disposition for income tax purposes has not occurred. Having said that, CRA pointed out that in such a situation a true joint tenancy with the child would not exist and, in its opinion, the goal of reducing probate fees would not be achieved because the property would not pass to the child by right of survivorship. Joint tenancy can be an effective part of an estate plan, but must be used with caution. If you have questions about creating a joint tenancy or other estate planning strategies, call us first for professional advice.

For a discussion of other strategies to avoid probate and probate fees, contact Beacon Law.

My spouse died and left everything to me. What should I do next?

Losing a spouse is a traumatic experience that naturally produces strong feelings. What is worse, added to the loss and grief is the sudden recognition that “the estate” must be dealt with.

After caring for your spouse’s remains you will receive an official death certificate from the funeral director who assisted you. This is an important document for administering the estate and it is advisable to get at least two of these certificates.

If all of your spouse’s assets and liabilities are held jointly with you, your tasks to administer the estate may be relatively straight-forward and not take too long to handle. For example, using the death certificate, you can quickly remove your spouse’s name from joint bank and investment accounts.

Other common points to consider include:

• Inquire if you qualify for a survivor pension or death benefit from your spouse’s employment or pension plan.

• Discuss your spouse’s final income tax returns with an accountant.

• If there is jointly-held real estate, update the land title (you may enlist the help of a lawyer with this).

• Review your own estate plan, including will, power of attorney, and representation agreement.

This article assumes the deceased was primarily resident in British Columbia. It is not a substitute for accounting and legal advice.

Beacon Law Centre offers surviving spouses a no-obligation initial consultation. This provides an opportunity to discuss your situation in a safe and confidential setting, to gain reassurance about the next steps needed, and to receive a quotation if further legal help is needed.