We’ve all heard the saying – nothing’s certain in life except death and taxes. In the accounting business, we have lots of experience with both. When we meet with clients to talk about estate planning, we hear one issue all the time: when there’s a death, how do we pay the lowest amount of probate fees in Ontario?
If it sounds Greek to you, here’s a little more on why you should be interested. Probate is a procedure. A court will approve a will, and officially confirm the person named in the will as the estate trustee. It’s not mandatory, but you need probate when the estate owns certain types of assets such as real estate, publicly traded shares or funds held in a financial institution.
Where you need third party help to deal with a particular asset, you’ll need probate. The third-party institution will want official confirmation as to who has legal authority to deal with that asset.
Now that you understand probate better –here’s why you need to care. There’s a fee attached to the process, and it often carries sticker shock. In Ontario, probate fees are currently one half of 1% for the first $50,000, and 1.5% for the total estate value over $50,000. For an estate worth $1 million (including the value of the personal residence), you’re looking at fees of almost $15,000.
There are a number of techniques that can help reduce probate fees in Ontario. They include:
- Place the asset in joint names with the person who will ultimately be the beneficiary upon death. On your death, the property will automatically pass to the other person—and won’t be part of your estate. A warning: there can be immediate (and adverse) tax consequences if you transfer some types of property to a joint tenant who is someone other than your spouse.
- For certain assets, such as life insurance proceeds and RRSPs, you can designate the beneficiary as someone other than your estate.
- You can transfer property to the ultimate beneficiary during your lifetime either directly or to a trust on the beneficiary’s behalf. Again, this could have immediate adverse tax consequences.
- You may have assets that can be transferred to beneficiaries without probate, like shares in a private company. You can reduce fees by making a secondary will just for these assets. Your executor will only need to apply for probate on the primary will.
- If you’re over 65 you can create an “alter ego” or “joint partner” trust to keep assets outside your estate, and reduce its value for probate purposes. You won’t give up your right to those assets during your lifetime. This type of planning offers a number of other benefits in addition to lowering fees. Next week I will offer more detail on this type of planning.
Sure, trying to minimize probate costs is an important part of estate planning. But at Silver+Goren we believe it shouldn’t be the primary driver of the will. Probate fees in Ontaro represent a one-time cost of 1.5% of your estate’s value. Setting up an estate with long-term tax savings for your beneficiaries is usually a much more important consideration than reducing fees in the short term.
As usual, we’ve given you a simple summary of some big ideas. Don’t forget the implications are extremely broad. Estate planning is a complex area for an accountant – and best done with professional help.