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While it’s definitely not easy, planning for your death is an important thing to do once you surpass a certain age. Creating your will is an essential step, especially if you have loved ones to leave behind. Not to mention, when it comes to the validation of your will, there’s the probate process to consider, as well as any potential fees involved.
That’s right. Even when you’ve died, there are still expenses to be paid. Read this to learn how much probate can cost and how to reduce probate fees.
Do All Wills Have To Go Through Probate In Canada?
The vast majority of Canadian-made wills end up going through the probate process at some point or another. After all, it’s one of the only ways to truly validate someone’s last will and testament. However, there is one notable exception:
In Canada, spouses and common-law partners are the most likely to hold joint estates, bank accounts and mortgages. If one spouse/partner dies, the estate automatically passes to the surviving spouse/partner. The same rules apply to anyone who shares a joint asset with another person, such as a sibling, child or another family member.
If that’s the case, there’s no need for a legal meeting or Executor because the bank or lender will just transfer the joint assets to the survivor. As a result, the entire probate process, including any fees, can be averted, at least until the other joint-owner dies too.
This is known as “the right of survivorship”.
What Happens During The Probate Process?
Once the Executor of someone’s estate is confirmed, one of their primary duties is to submit the deceased person’s will to probate court, during which it will be evaluated for mistakes, duplicate documents and other legitimacy issues. After the will has been reviewed and validated, the person’s official last will and testament is settled.
Here are some other things that could happen during the probate process:
- Challenges – Before the deceased person’s last will and testament is confirmed, other people are allowed to challenge its terms. For example, if another party created the will because the deceased wasn’t capable at the time or if a family member is disinherited in place of someone else, like a caretaker.
- Change of Executor – After the will is validated, the probate court will confirm if the current Executor is still right for the position. For instance, the court may deem an Executor unfit if they’re no longer physically or mentally able to assume the role, if they’re incarcerated or if they simply don’t want the responsibility.
- Grant of Administration – Also called a “Grant of Letters Probate” or “Certificate of Appointment of Estate Trust With or Without Will”, a Grant of Administration is an official document that confirms the Executor of an estate and terms of a will. Once they have this grant, the Executor becomes the administrator of the estate.
- Fulfillment of Will Conditions – Lastly, it is the Executor’s job to carry out any specificities listed within the deceased person’s last will and testament. This includes presenting the Grant of Administration at the designated financial institution to have the deceased’s assets transferred into their bank account.
Check out our comparison of Willful and Epilogue, two popular online will platforms.
How Much Do Probate Fees Cost?
In Canada, probate fees vary depending on the value of a deceased person’s estate, as well as the province or territory that their last will and testament is officiated within. To give you an idea of how this works, let’s say you’re subject to probate fees in Ontario:
Estate Value: In Ontario, probate courts generally charge 0.5% on the first $50,000 of a dead person’s estate and 1.5% on the value remaining.
Property Ownership: An estate includes properties that aren’t jointly owned (where the right of survivorship takes over) and doesn’t have other beneficiaries named. If “estate” is listed as the beneficiary, the Executor inherits these assets:
- Bank Accounts
- Life Insurance Proceeds
- Businesses (shares, properties, etc.)
- Valuables (jewelry, art, etc.)
- Vehicles (cars, boats, etc.)
- Non-Registered Investment Accounts (cash, margin, etc.)
- Registered Financial Accounts (RRSP, TFSA, etc.)
- Real Estate (homes, investment properties, etc.)
Deductions From Inheritance: On the other hand, there are certain debts, expenses and benefits may be subtracted from the inheritance, such as:
- Outstanding mortgage balances on real estate
- Properties/assets that are listed in a second will
- Registered financial accounts that have named beneficiaries
- Life insurance proceeds that have named beneficiaries
Here’s an example:
- A deceased person’s real estate properties are valued at $1,000,000
- Their RRSP and TFSA are valued at $250,000 each
- The estate includes business shares valued at $500,000
- However, there’s an unpaid mortgage balance of $100,000
- There’s also a life insurance policy of $200,000 in someone else’s name
|Registered Financial Accounts||$500,000|
|Original Estate Value||$2,000,000|
|Minus Mortgage Balance||-$100,000|
|Minus Life Insurance Proceeds||-$200,000|
|Final Estate Value||$2,000,000 – $300,000 = $1,700,000|
|Probate Fees on First $50,000||$50,000 x 0.5% = $250|
|Probate Fees Remaining||$1,700,000 – $50,000 x 1.5% = $24,750|
|Total Probate Fees||$250 + $24,750 = $25,000|
How To Reduce Probate Fees In Canada
As you can see, probate fees can add up to a serious amount of money, even for a relatively small estate. Don’t worry, there are a few different ways to reduce them for the people you leave behind when you pass away, including but not limited to:
- Name Your Beneficiaries – If you have loved ones or charities that you wish to list as inheritors, make sure to name them in your will so that your accounts, assets and other possessions go to them, rather than the estate.
- Hold Your Assets in Cash or Bearer Bonds – During the probate process, cash assets and bearer certificates, like stocks or cheques that are payable in “cash” may be excluded. This actively reduces the amount of taxes and fees involved.
- Have a Joint Ownership – As mentioned, accounts and assets that are owned jointly don’t get included in the probate process either. Common examples include homes and RRSPs, which are transferred to the surviving owner.
- Create Multiple Wills – If you own a business, such as a corporation, it’s a good idea to draw up a second will so that it doesn’t automatically go to your estate when you die. Instead, the terms of the secondary will should be honored.
- Send Gifts to Loved Ones – By giving your assets away before you die, your estate should have less value when it goes to probate. Watch out, gifting assets that have appreciated in value may lead to taxable capital gains in the future.
- Establishing Trusts – Keeping assets in trust accounts also means they won’t go to the estate. “Inter-vivos” trusts are created before death and “testamentary” trusts are drawn up according to your Primary or Secondary will after you die.
- Convert Lines of Credit – “Unsecured” lines of credit can be converted to “secured” with collateral, which decreases an estate’s value. For example, home equity lines of credit can reduce probate fees and lead to lower interest rates.
Are probate fees considered income tax?
Are cash gifts safe from taxes?
Can I avoid the probate process by using a trust or a private company?
How long is the probate process?
Do I need a lawyer for probate court?
Trying To Reduce Probate Fees For Your Beneficiaries?
Don’t forget, probate laws and costs fluctuate in every province or territory. If you don’t understand the rules in your area but want to avoid as many probate fees as possible when you die, consulting a legal or financial professional could be a good idea after all. By preparing yourself now, you could help your loved ones save money in the future.
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