November 22, 2022 | Hosted by Leanne Kaufman
Learn how you can avoid probate of your Will to benefit your beneficiaries and executors
“The third issue, a big issue, is the confidentiality or privacy piece because these are court processes in every province, they are public. It is therefore very difficult to get an order, while keeping the particulars of an estate confidential.”
Hello, and welcome to Matters Beyond Wealth with your host, Leanne Kaufman, president and CEO of RBC Royal Trust. For most of us, talking about subjects like aging, late life and estate planning, isn’t easy. That’s why we’re going to help get the conversation started on this podcast while benefiting from the insights and expertise of some of the country’s top experts. We want to bring you information today that will help to protect you and your family in the future. Now, here’s your host, Leanne.
Hello, I’m Leanne Kaufman and welcome to RBC Wealth Management Canada’s Matters Beyond Wealth.
In a number of provinces in Canada, in estate planning circles, probate can be a bit of a dirty word. Most Canadians don’t know much about probate except, in all likelihood, they’ve been told that it’s something you should try to avoid. Probate is a concept and probate fees, or probate tax, vary from province to province in Canada. Outside Quebec, where the concept of probate is quite rare due to their civil law system, probate fees can range from a low flat fee of between $140 and $525, in Alberta and the Northern Territories, to a high of $16.95 for every $1,000 of probatable assets in the estate. Sound confusing? Kind of, but to help us unpack it all, my guest today heralds from Nova Scotia—the land of the highest probate fees in the country.
I’m pleased to welcome Richard Neidermayer, a partner at Stewart McKelvey. As an estate and tax advisor and corporate lawyer, Richard is a leader in trusts, tax and corporate law. He works primarily with individuals and owner-managed and family businesses on a broad range of estate and trust, tax and corporate matters.
Richard, thank you so much for being here with me today to talk about what probate is, how to potentially get around it when appropriate, and why all of this matters beyond wealth.
Great! Thanks, Leanne. Happy to be here.
Okay, Richard, let’s really go back to basics. What on earth is probate? Or, just to make things more complicated for those who live in Ontario, we don’t call it probate, we call it “estate administration tax.”
It’s a good question. Probate is a court process where a court is certifying that a person has died, they have either left a Will, or if there’s no Will, they’ve died intestate, and the person named in the Will is the executor or an administrator appointed under the rules in that province, have authority to then deal with that person’s estate. It is recognition through a formal process in every province and a court order that results, that says this person has died, this is either the document they’ve left or they’ve left no document, and this is the person that you as a third party—a bank, or the government, or whoever—should be dealing with in respect of that person’s estate because they’re the rightful administrator or executor of the estate.
Now, I think people get really confused about why it’s required or when. I even had my mother say to me, “They have a Will so they don’t need probate. Do they?” Why don’t you help us understand why it’s required, and when?
Right, it does tie back to that court-ordered process because, yes, you can have a Will but others don’t know that that’s your last Will and testament unless the court has kind of blessed it. Which is really what you’re getting when you submit to the probate process, a court-ordered authorization to confirm those things that I mentioned a moment ago.
It’s not required in every estate and I’ve dealt with a number of estates where we didn’t have to probate the estate. But, typically if there’s land held solely in the name of that deceased person, you’re going to need probate in that province, wherever that land is. Also, if there are accounts—financial accounts, bank accounts and brokerage accounts, etc.—in the name of that deceased person, that financial institution is again going to look to a grant of probate or certificate from the court in the relevant province to confirm that they’re dealing with the right person as the executor or administrator to deal with the estate, and to take instructions from them so that they’re protected. So that they’re not giving the money to Jimmy and in fact Jane comes in next week with a different, more recent document that says “No, you should have paid it to me as the executor and beneficiary, not to the other person you already did.”
There may be other assets as well that need that process in order to transfer—motor vehicles sometimes, things like that. Typically it’s land solely in one person’s name or the financial institutions where the accounts are only in that person’s name that are going to drive you into that need for that probate process and that third-party approval of the document from the court.
Right, that’s the part I think people don’t always understand if they haven’t gone through the process, is that it’s the third parties who are relying on the probate to validate that the executor is in fact the proper person for them to take instructions from. And I think that’s the part that sometimes gets missed.
Well, I think that’s right. The beneficiaries might be quite content that that’s Mom’s Will and that’s fine. It’s those banks or those people trying to buy a piece of land or something that need that confirmation exactly.
Right. So, why do people try so hard to avoid it?
I think there’s a number of different reasons, but I think it really comes down to three reasons. One is there is a process involved. It means there are some delays, you have to submit the document to the court and some provinces are very quick to give their court orders, some take much longer. So, there can be delays built into the process once you start.
Secondly, you mentioned earlier about the fees and taxes that relate to probate and they can be very high. Certainly in Nova Scotia, where I’m from and I practice, we have the highest probate taxes in Canada. Ontario and B.C. also have very high probate taxes. So, people are concerned about that because these are wealth of taxes effectively, in the sense they apply to the total value of the estate, not necessarily gains on them. It’s applied to a very high number for many Canadians and then it’s a cost that’s paid to the government and draws out of what’s available to the beneficiaries.
The third issue—big issue—is really the confidentiality or privacy piece because these are court processes in every province, they are public, and it’s very difficult to get an order keeping the particulars of an estate confidential. A recent case, in fact, has determined it’s going to be pretty impossible to keep it confidential and sealed unless there are some cogent reasons to do so, which would be extremely rare. People don’t want their Will being public or their value of their assets being made public. In addition to saving the tax, they also want to maintain the privacy.
I think, those are the three broad reasons why people do try to avoid probate.
I think that’s another really important point, the last one that you made that isn’t well understood, is that very public nature of a probated Will and how anyone who knows the process can go down to the courthouse and get access to see what was in that Will, and who got and who didn’t.
Exactly. I’ve had a number of clients who says, “I don’t really care about that for myself because I’m not here to worry about that, I’m deceased at that time.” But, it’s more about the beneficiaries you’ve left behind and knowing what they’re getting and making them potentially vulnerable to influence or whatnot from others who can see that “Okay, yes, we know your parent died and now we see you’re inheriting this money” and now you’re a target for something that’s nefarious. I think that’s more of the concern that people have with the publicity.
Yes, makes perfect sense but, again, something you don’t often know until it’s too late.
Now let’s talk about the part everyone’s dying to hear about, no pun intended. What are some of the most common strategies you see to try to avoid this probate process?
Right. Well, a lot of people typically avoid probate just by the way they normally live their lives in certain aspects. Joint tenancy, for example, is a way that can avoid probate. If you hold an asset in joint tenancy with right of survivorship and one of the joint tenants dies, under the law the other one takes that interest without going through probate by operation of law. Spouses often hold their homes that way, for example, so when one spouse dies, you don’t necessarily probate that spouse’s estate because the title of the house passes to the other spouse.
That can apply to other types of things, financial accounts, and brokerage accounts. It doesn’t have to be just between spouses but when you do it without a spouse, it’s just with someone else, there are some broader implications to that.
Beneficiary designations is another way that’s very commonly used to avoid probate. That can cover life insurance policies on a person’s life or registered accounts like RRSPs, RRIFs, tax-free savings accounts, those kinds of things under provincial law can have beneficiaries designated which, when applied, pass directly to that beneficiary and they don’t go through probate of that person’s estate.
We also use trusts a lot and the thing with trusts is that when you establish a trust during someone’s lifetime and put assets into it, the trust terms dictate what happens when that person dies. Then it’s the trust terms that are dealing with those assets, not the Will necessarily, and so we don’t need probate for that successor trustee to be able to administer that trust. There’s various types of trusts that work. There’s some very customizable ones like alter ego and joint partner trusts, but other types of trusts that are established during lifetime and hold assets are typically not part of someone’s estate and so they don’t need probate in order to determine where they go.
In some provinces, you can also use something called a multiple Will or dual Will strategy which, again, is a different way to avoid probate on certain of the assets but perhaps not all of the estate.
Let’s just tuck in a little bit to that multiple Will strategy. Can you describe to us in slightly deeper terms what that is and why that might be beneficial to some listeners more than others?
Yes, it’s a strategy that works in some provinces, Ontario in particular. For a long time in Ontario, you typically have dual or you might have more than two but often just two Wills, a primary and a secondary Will. The primary Will would deal with assets that would need probate, things like land or bank accounts like that. The secondary Will would deal with assets that don’t typically need probate, so things like private company shares and other things like art collections, coin collections or collectibles, things that don’t have a registered title necessarily. Those kinds of things, if they’re peeled out of the estate into the secondary Will, you can then submit the primary will to probate, pay your probate tax on that, disclose those assets but you’re not disclosing or paying probate tax on the assets that are governed by the secondary Will. Which, when this strategy works, those assets are typically the most valuable part of someone’s assets and estate, so you’re trying to parcel those out and deal with them in a different way.
The same executors can deal with both sides of this strategy, or they could be different. What you’re trying to do is isolate assets by description that are not going to need probate, and then move them into a secondary Will concept so that it doesn’t attract that probate tax or you don’t lose that confidentiality.
I think we can agree that some of these strategies can get a little tricky and complex. We wouldn’t want our listeners to try to undertake this without any professional advice that looks at the whole holistic plan because touching one aspect has a ripple effect on a bunch of other things that’s part of their estate plan. What are some of the risks tied to these strategies that are used to avoid probate?
Two primary examples of the more problematic ways that people try to avoid probate without really thinking it through fully.
One is joint tenancy. As I alluded to earlier, you can create joint tenancy arrangements not with your spouse but with others, with adult children or others. What it creates is lots of risk of misunderstandings about where that asset is actually supposed to go. Say you have three children, you name one child as the joint owner of the bank account or joint title on the house with the parent. When the parent dies there’s sometimes disputes about, if that house actually was supposed to go to that child or is that actually an estate asset that is in fact supposed to be shared three ways, which is what the Will says. There are presumptions at law that protect that but if you don’t document it well and there certainly can be lots of disputes and it can lead to estate litigation.
The other big area where I think we see a lot of this is beneficiary designations. And with beneficiary designations, particularly with … not so much with insurance and such, which is tax free in the death benefit, but on a registered asset like an RRSP or a RRIF, when you name a person as the beneficiary of that asset, it does pass to them outside of probate from a provincial law perspective, but the tax related to that asset ties back to the estate. So, you can sometimes get these tremendous mismatches where the beneficiary receives the funds in the registered account but the tax bill related to that goes back to the estate and other beneficiaries are absorbing that tax. It can create a mismatch of where the asset goes, versus where the tax bill lies.
Those are the kinds of things that I think people can back themselves into if they’re not purposeful about how they’re doing their probate planning.
And, getting the right advice upfront.
Some of these things are the types of things that we end up seeing in litigation on the backend for sure.
Well, I know we’ve just really scratched the surface. I’m sure that lots of people listening would have further questions. But, if you could just have our listeners remember one key thing about the topic today, what would that one thing be?
Well, it’s actually kind of two.
One, have a Will. I think having a will is important. There’s still 50 percent of Canadians that don’t have a Will. I think that’s critical.
But, in terms of what we’ve talked about on the probate plan, as part of a holistic estate plan, in addition to having a Will and making sure it’s clear where things are supposed to go. Do consider as part of that plan, how your estate will be dealt with and whether it’s in probate or not. Are there things you can do to avoid it? It’s really making sure you’re purposeful in thinking about this topic when you’re looking at the overall estate plan because it is something that can create some important consequences to you that aren’t anticipated and you can gain that confidentiality. You can avoid the probate tax and still have a very well planned estate if you’re purposeful about how you do it.
Great advice, Richard. Thank you so much for joining me today to help demystify this topic of probate and why this matters beyond wealth.
Well, thanks very much. It’s been a pleasure talking with you today.
You can find out more about Richard on LinkedIn and at stewartmckelvey.com. Until next time, I’m Leanne Kaufman. Thank you for joining us.
Being an executor can feel overwhelming, especially during what is already a difficult and emotional time. Many people find out that they aren’t ready for what’s involved, especially given the time required, and the added stress of completing the necessary steps to successfully execute your duties.
Whether you are currently in the process of settling an estate or newly appointed as an executor in a loved one’s Will, RBC Royal trust can help. Available on the RBC Royal Trust website and free to use for all Canadians, Artie, the executor helper™, is a set of free online tools that can help you understand the complexity of the estate you’re settling, and guide you through the tasks involved. Visit rbc.com/royaltrust to learn more.
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