Probate is the legal process of administering a person’s estate upon their death. One of the key aspects of probate is the payment of probate fees, which vary depending on the jurisdiction. In Alberta, Nunavut, Northwest Territories, Quebec, and the Yukon, probate fees are relatively low. However, in other jurisdictions, such as Ontario, probate fees can be quite high.
Given the type of work that we do on behalf of clients, we have to be cognizant of the probate planning requirements that might exist for clients with property in the various provinces in Canada and states in the U.S. It is not uncommon to have a client who is – what we would call – the traditional snowbird in Canada. They might have their primary residence in Canada but spends time in a southern U.S. state where they might have a bank account or own U.S. real property. Probate and estate planning for that type of client would require an understanding of the requirements of the Canadian province that they live or have property in as well as the state they spend time in or have property as well.
From a Canadian perspective, in 2018, the Ontario Superior Court of Justice in the case of Eurig Estate confirmed that the Ontario probate fees were unconstitutional because they were a tax, not a fee, and as such had to be imposed by statute, not regulation. While the Eurig Estate escaped the tax, the Ontario government retroactively amended the legislation to protect its right to collect the tax.
Probate fee planning should never be done in isolation. There are potential problems with probate fee planning, including failure to distribute the assets of the deceased among beneficiaries in the way it was intended, increased income tax liability or missed income tax planning opportunities, and uncertainty as to the intention of the deceased for a joint account.
Strategies to reduce probate fees often have a large impact on the distribution of wealth on death. If a large portion of the assets of the deceased are passing outside the estate to avoid probate, it can be difficult, and sometimes impossible, to achieve estate equalization through the Will. A hotchpot clause in a Will is sometimes used to provide for an adjustment to the share of a beneficiary to account for property passing outside the estate. However, there must be sufficient assets in the estate to fund the adjustment.
It is not possible for a gift over for jointly held property. The multiple will strategy whereby a second will governs assets that can be transferred without a grant of probate (eg. shares of a private corporation and personal items) is approved by the courts in Ontario & British Columbia, but Nova Scotia has denied this strategy. Another option for reducing probate fees is the use of an alter ego or joint spousal trust, or an insurance trust (which can only be used to reduce probate fees on insurance proceeds). Alter ego and joint spousal trusts can be very effective estate planning tools to avoid probate. However, the settlors have to be over the age of 65 to establish these types of trusts.
Obtaining probate has its advantages, such as third parties, such as financial institutions, land registry offices, and others controlling title to property, permit a transfer of the property of the deceased into the name of the executor or beneficiary. It also protects the executor from liability in the event the Will is subsequently found to be invalid. However, not obtaining probate also has its advantages, such as savings in probate fees, privacy as the Will is not available for public inspection, and potential savings in executor’s fees and legal fees.
In conclusion, probate fee planning is a complex process that should be approached with caution. It is essential to consider the potential impact of the distribution of wealth on death, as well as the advantages and disadvantages of obtaining probate. It is recommended to seek the advice of a professional advisor before making any decisions regarding probate fee planning. If you would like to review your estate plan and determine if strategies might exist to reduce probate fees and that are consistent with your succession intentions, please reach out to us at contact Cardinal Point.