By: Matthew Getzler – Wills and Estates Group and Tax Group

Probate is the process by which an individual’s Will is certified by a provincial court. Where an individual holds assets in his or her own name, a probated Will is ordinarily required in order for the estate trustees to address a variety of those assets (such as bank/investment accounts and Canadian real estate). To probate a Will, the court charges a probate fee based on a percentage of the fair market value of the individual’s assets administered under the Will (~1.5% in Ontario–or roughly $15,000 for every $1 million of assets). To make matters worse, assets may be subject to probate fees on multiple occasions (i.e., both spouses may be subject to probate fees on the same assets if they own them individually and they pass to the other on first death).

Intuitively, it seems unfair to pay probate fees on assets that do not otherwise require a probated Will to affect their transfer (such as shares of privately-held family corporations or personal property). Thankfully, in many jurisdictions (including Ontario, the focus of this article), there are a number of probate planning opportunities available to help reduce these fees.

Jointly Held Assets

One of the most common (and often unintended) forms of probate planning is holding assets jointly with another person. In this case, probate fees are not paid until the death of the last to die of the joint holders, since ownership of the property goes directly to the surviving joint owner by right of survivorship on the first death, outside of any Will. While joint ownership is an effective way to avoid probate fees on multiple occasions, this form of probate planning does not eliminate probate fees in their entirety. There are also a variety of other tax and non-tax issues that come with joint ownership of assets.

The Use of Multiple Wills

Another common form of probate planning in Ontario is the use of “multiple Wills”–one Will that deals with those assets for which a probated Will is required (often called a “public Will”) and another Will that deals with those assets for which a probated Will is not required (often called a “private Will”). When multiple Wills are used, only the fair market value of those assets that form part of the public Will are subject to probate fees. Probate fees can accordingly be avoided to the extent of the fair market value of those assets forming part of the private Will.

Advanced Probate Planning

There are other more advanced probate planning techniques that allow assets that would typically form part of the public Will (and subject to probate fees) avoid probate altogether. These include “bare trustee corporation planning” and alter-ego or joint partners trusts, where available. “Bare trustee corporation planning” is the transfer to a “bare trustee corporation” of legal title to (but not beneficial ownership in) certain assets that might otherwise require a probated Will to effect a transfer upon death.

As a result of recently proposed changes by the Canada Revenue Agency to reporting requirements for trusts (including bare trust relationships), the optimal advanced probate planning strategies may have to be reconsidered. Given the significant savings that can be enjoyed with such advanced planning, however, it is almost certain that some form of advanced planning will continue to be used, whether it is bare trustee corporation planning or otherwise.

Example

Mr. and Mrs. Bucket are the owners of an incorporated business (owned solely by Helena, valued at $2 million), real estate in Ontario (owned jointly by Bobby and Helena, valued at $2 million) and an investment account at a financial institution (owned solely by Bobby, valued at $2 million). Let’s assume the plan is to leave everything to each other upon the first death. This example applies to probate and Will planning in Ontario.

With only a single Will and absent any other planning, probate fees of ~$30,000 will be owing on the first death and probate fees of ~$90,000 will be owing on the second death.

With only a single Will and a change in ownership of the real estate and investment account to joint ownership, there would be no probate fees on the first death (a probated Will wouldn’t be required to effect the change of ownership of the corporation if Helena died first) but probate fees of ~$90,000 will be owing on the second death.

With multiple Wills (but no change to joint ownership), probate fees of ~$30,000 will be owing on the first death and probate fees of ~$60,000 will be owing on the second death.

With multiple Wills and changes to joint ownership, there would be no probate fees on the first death, but probate fees of ~$60,000 will be owing on the second death.

Finally, with multiple Wills and other more advanced probate planning techniques (i.e., “bare trustee corporation planning” or alter-ego trusts), probate fees could be avoided in their entirety.

Conclusion

A comprehensive tax and estate plan can reduce–or even eliminate–probate fees that might otherwise be owing upon death. In many cases, the savings can be significant and can be achieved on a cost-effective basis. The failure to consider probate planning options–and tax options in general–can undermine even the best estate plan. How advanced probate planning techniques will be implemented in the future remains to be seen as a result of recently proposed amendments by the Canada Revenue Agency to the reporting regime for trusts. Review your plan with a professional.

For more information on probate planning or will and estate planning, please contact Matthew Getzler at mgetzler@mindengross.com.

A version of this article was originally posted on Canadian Family Offices in April 2022. Read the original article here: https://canadianfamilyoffices.com/commentary/how-to-shrink-probate-fees-on-your-estate-in-a-few-cost-effective-moves.  

This article is intended to provide general information only and not legal advice. This information should not be acted upon without prior consultation with legal advisors.