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Wills and Probate Planning
An individual traditionally uses a will to control the distribution of the assets that he or she owns at the time of death. The individual's will effectively does two things. First, it appoints a personal representative (i.e., the executor/executrix) to oversee the administration of the assets after the individual's (testator's/testatrix's) death. Secondly, the will directs the personal representative as to how the assets are to be handled, including specific bequests.

In process of probating a will proves the validity of the will and allows prior versions to be ignored. A probated will is often required by a third party (e.g., a bank or land titles office) as evidence that the personal representative has the authority to deal with the assets of the deceased. In recent years, some provinces realized the financial value of these testamentary successions and increased probate fees to the point that the Supreme Court of Canada ruled that such charges were in fact taxes rather than fees.

In addition to the taxes involved with probating a will, an additional consideration is the loss of privacy. A probated will becomes a matter of public record. A copy of the will and a list of assets passing through probate can be obtained by anyone for a small fee.

To avoid probate taxes and the disclosure of private information, many individuals seek strategies that allow assets to pass to intended beneficiaries without passing through a will. While all of the following strategies will work to transfer assets outside the will, each has its drawbacks, some of which are outlined below.

Naming a beneficiary: All insurance contracts allow the contract owner to designate a beneficiary to receive the benefits under insured or annuitant. A beneficiary may also be named for an RRSP or RRIF. The funds are paid directly to the named beneficiary and do not pass through the will. The primary drawbacks is that the beneficiary may not be capable of dealing with the proceeds of the contract, either because of age or lack of financial savvy.

Joint ownership: Assets registered in joint tenancy (as opposed to tenancy in common) pass from joint title into the name of the surviving owner upon the death of the tenant. The property does not become part of the estate of the deceased and is not subject to probate taxes. It should be noted that moving property into joint ownership is considered a disposition for tax purposes and income tax on capital gains may become payable. The other primary drawback is that the original owner loses some control over the property and will need the other owner to participate in all decisions.

Family trust: An individual may consider moving some or all of the assets into a family trust. The assets of the family trust could be distributed upon the individual's death pursuant to the provisions of the trust. Such a distribution would not need a probated will. The primary drawback is that the individual's assets would become assets of the trust.

Consideration should be given to two new types of trusts currently in the proposal stage: the alter ego trust and the joint partner trust. It should be noted that planning around probate taxes should not become a primary objective, but rather a means to accomplish other important objectives. A properly worded will may address those objectives quite efficiently, whereas some of the techniques for avoiding probate may only complicate the estate planning process. Professional advice should be sought before the implementation of any strategy.

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