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.
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.
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
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.
TOP | BACK