Probate Fee Planning

By Theresa Arsenault, Q.C.

British Columbia is a unique jurisdiction for estate planning because of:

  • probate fees of 1.4% of the gross value of the assets that pass through Estate ($14,000 per million); and
  • the Wills Variation Act (“WVA”) which allows a spouse or child to apply to vary the Will if they don’t believe “adequate provision” has been made for them in the Will.

Because of both of these provincial laws, planners use tools here that are not as common in other provinces. These tools have the goal of:

  • keeping assets out of the estate using joint ownership, gifting, named beneficiaries and trusts; or
  • reducing the assets that are subject to probate by using a separate will for those assets that do not require probate to transfer.

Joint Ownership

One of the most common (and poorly thought out) methods of probate fee planning is putting assets in joint ownership.

Benefits:

Immediate transfer of assets with just a death certificate;

No probate fees on first to die;

Assets are out of the estate for WVA purposes.

Cautions:

A transfer into joint tenancy is a disposition for tax purposes, triggering taxes on investment properties or investment accounts that have accrued capital gains;

Loss of principal residence exemption after the date of transfer for the portion transferred out of the name of the person who lives in the home;

A transfer into joint tenancy triggers Property Transfer Tax on properties, other than principal residence or recreational property under $275,000;

Need the signature of a joint owner for sale or mortgage of property in the future;

Jointly owned asset is subject to claims of creditors or estranged spouse of new joint owner;

Joint owner who “forgets” intention of transferor, need evidence of intention;

May foil estate plan, if intending to use testamentary, spousal or alter ego trust, or if gifting asset in will that is not owned by the testator alone.

Most important advice: document intention of transferor in writing, eg. deed of gift.

Gifting

There is no gift tax in Canada, but a gift is a disposition for capital gains tax purposes.  You lose control/use of an asset once it is gifted, so don’t gift it if you might still need it.

There is an annual gifting limit for US tax payers before gift taxes are payable in the US.

Named Beneficiaries

It is possible to name beneficiaries of: life insurance products, including by life insurance trust declaration; RRSPs, RRIFs, TFSAs, and Segregated Funds.  Assets with a named beneficiary other than the estate pass outside the estate and do not attract probate fees.

Caution that the estate pays the tax on RRSP/RRIF, not the beneficiary.  Also, avoid naming a minor as a direct beneficiary as life insurance proceeds will be held in the court and paid out in full at 19.

Trusts

Alter ego and joint partner trusts can be used if you are 65 plus and Canadian residents.  Only settlor and spouse can have use of income and capital for their lifetimes.  Trusts can carry on after death but they are taxed at inter vivos tax rates rather than the lower testamentary tax rates.  Caution that tax losses can be stranded in the trust and not usable against gains in your estate so you need to consider carefully what assets are put in a trust.

Discretionary family trusts, to shelter growth in value from tax on death and from probate fees can also be used.

Consider a life estate or spousal estate in a will, so probate fees are paid only on the death of the first spouse, but not on the second, and you get testamentary tax rates and control over where assets end up after death of second to die.

Multiple Wills

Useful where there is significant value in private company shares, or where assets are in multiple jurisdictions.

Personal representative must swear an affidavit listing all assets of the deceased that pass to the personal representative under the will.

Assets that require probate to transfer (eg. real estate or a stock portfolio in deceased’s name alone) are dealt with in a personal will, and private company shares (assuming bylaws of company allow transmission to executor without probate) in a corporate will.

Must use different personal representatives for each will.

Careful drafting is required to define which assets pass under which will, where debts and taxes are paid, and to avoid revoking the will being made concurrently.

Useful where former Alberta resident, who is now ordinarily resident in BC, owns real estate in BC, but still has significant investments in Alberta that would be intangible assets for probate fee purposes.  Do a separate will for BC assets only that can be probated in BC, and one for Alberta assets that does not need to be probated in BC.
   
For more information contact Theresa Arsenault at: arsenault@pushormitchell.com or (250) 869-1110