Probate Fee Planning

Estate taxes and succession duties were abolished in Canada in the early 1970s. However, provincial probate fees remain a way in which the provincial government taxes your wealth on death. Most wills in British Columbia are submitted to the Supreme Court for probate before any distribution of the assets of the estate. Probate is the court's approval of a will and probate fees are the registration costs charged by the Court. The amount of the probate fee depends upon the value of your estate and is usually payable on the gross value of the estate over $50,000.00.

Probate fees are 1.4% of the value of the assets in the estate at time of death over $50,000. This means that with an estate worth one million dollars, the fees payable to the Province for probate will be $13,650.00.

Fortunately, probate fee relief may be available for those who plan ahead. There are three specific ways to avoid probate fees: (a) giving away your property while you are alive, (b) holding your property in joint names as joint tenants, and (c) establishing a living trust.

Probate fees are calculated and payable on the value of your estate at death, so, if you dispose of your assets before you die you will avoid these fees. Giving away your assets before death, however, is often easier said than done. This is especially the case as death can occur without warning, or there can be a period of incapacity, in which case it will be too late to legally do anything. At the same time, giving away your assets while you are living may mean depriving yourself of the use of these assets. With this in mind, this method of avoiding probate fees may not be your best option.

Registering your assets in joint names as joint tenants (not tenants in common) is another easy and inexpensive way of avoiding probate fees. When assets are registered in the joint names of parties as joint tenants, a right of survivorship arises. This means that on the death of one of the parties, the survivor will become the sole owner of the asset. The result is that probate fees are avoided because the asset does not pass through the estate of the deceased. However, if you hold property in joint names as tenants in common, there is no right of survivorship and your one-half interest in that property will pass into your estate and be subject to probate fees.

While joint ownership of assets may work to your advantage in certain circumstances, it can also lead to disputes and other legal problems. There have been several Court decisions involving joint tenancy and the following applies to joint ownership of assets:

1) when a person transfers his or her own money into his or her name jointly with another person there is presumed to be a trust created in favour of the original owner of the funds. This presumed trust may be rebutted by evidence to the contrary;

2) the burden of asserting a beneficial transfer of the property is on the person who is added to title as the joint owner;

3) if the recipient of joint ownership is a child of the transferor that burden of proof will be much easier to satisfy; and

4) if is very difficult to prove that a deceased person intended to make a gift without some corroboration such as a supporting witness or evidence in writing of the intention of the deceased.

These points highlight the importance of clarifying the reasons for the transfer of property to joint names. They also imply that challenges can be made concerning the joint ownership of your assets. With this in mind, it is important to ensure that your reasons for placing your property in joint names are carefully documented.

As well, you should be aware that you lose control over one-half of your asset, so you will need the joint owner's agreement to sell, use the property as security, or mortgage the property in the case of real estate.

Another practical concern with jointly held property arises when one joint owner has financial difficulties or a breakdown of a marriage or common-law relationship. If the transaction has not been properly documented, the creditors or spouse of the joint owner may claim to be entitled to one-half of the jointly owned asset.

Adverse income tax consequences can also arise on a transfer into joint tenancy as a deemed disposition takes place of the half of the asset transferred and a capital gain may arise if the asset had a fair market value that exceeded the cost of the asset. A transfer into joint tenancy of a principal residence can result in a loss of the principal residence exemption as to the one half transferred when the property later is sold. Legal advice is strongly recommended before any transfer of assets into joint tenancy.

Finally, the "living trust" or "protective trust" also provides a means for avoiding probate fees on your estate. Living trusts provide for the transfer of the assets of an individual into a trust during that person's lifetime. The transferor continues to have access to all of the income and capital derived from the asset while they are still alive. On their death, the living trust ensures that the property will pass according to the terms of the trust (as opposed to the will), and the trust assets are not included in the calculation of probate fees.

The advantages to establishing a living trust include the fact that you retain control of your assets, your beneficiaries are provided for, and you will avoid paying probate fees on your death. At the same time, living trusts will ensure that creditors or the spouses of your beneficiaries cannot make a claim against these assets.

With proper planning and good tax and legal advice, it is possible to avoid or at least reduce your probate fees. If you have any concerns about your current situation, or if you wish to take advantage of any of the three options we have described, you should always consider the consequences carefully and make sure that your intention is clearly understood.

This article is not legal advice and a lawyer should be consulted on any specific case.