Probate Fees – Hull on Estate and Succession Planning Podcast #69
Read the transcribed version of "Probate Fees"
During Hull on Estate and Succession Planning Podcast #69, Ian and Suzana discuss the topic of probate fees. They discuss probate fees, probate planning, and tax avoidance.
Click "Continue Reading" for the transcribed version of this podcast.
Probate Fees – Hull on Estate and Succession Planning Podcast #69
Posted on July 17th, 2007 by Hull & Hull LLP
Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #69 of our podcast on Tuesday, July 17th, 2007.
Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by
Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.
Ian Hull: Hi Suzana.
Suzana Popovic-Montag: Hi there Ian, how are you?
Ian Hull: Just great.
Suzana Popovic-Montag: That’s good.
Ian Hull: Beautiful summer day.
Suzana Popovic-Montag: It’s lovely.
Ian Hull: Well, why don’t we talk a little bit today about this topic of probate fees. We’ve touched on it just recently and not only is it a hot topic, but it’s an important topic. We are engaged in cases where litigation can ensue just over the whole question of probate fees. And a lot of planning gets sort of focused around it. And as we’ve said in the past and I’ll say until I’m blue in the face, it’s sort of a crazy thing to worry about when it’s approximately 1.5% tax in Ontario jurisdictions and it’s a modest tax in most others in Canada. We’re very different than the US which has a, I would say in some respects, a more draconian tax system. And therefore most of the estate planning in the US is done pre-death and is set up through trusts and so forth. So that helps avoid taxes at that jurisdiction.
But the probate tax is a good illustration of really what is an overwhelming issue for all estate planning. And we won’t get too Ontario-centric about this, but the problem being that, you know, you want to pass on your estate as tax efficiently as possible. So why don’t we turn and talk about the probate tax and some of the…use it more as an illustration of the kind of issues that arise and what is a constant theme in estate planning and that is, tax avoidance and not tax evasion.
Suzana Popovic-Montag: Very important distinction, Ian. Well certainly from a probate planning perspective, and you’ve just pointed out the fact that so much of the planning is done around avoiding a tax which, at the end of the day, is quite miniscule compared to the legal fees that can be incurred as a result of a poorly planned estate which results from this fancy maneuvering that otherwise, you know, isn’t in retrospect all that very important. But it certainly, you know, I know we always counsel people that it’s much more important to focus on the tax consequences, the capital gains, the income tax consequences of certain assets and what happens to them upon death, as opposed to just focusing on probate fees.
Ian Hull: So in our past podcasts, we’ve discussed the probate itself. And just to recap a little bit, in a sense, when we have to pay a tax on the probate, we’re paying a tax because we’re getting the seal of approval from the court that this is indeed he last Will of an individual. So in a way, you’re getting what you pay for. You are actually getting some value for the tax payment.
Alright so one of the things that when we’re addressing the whole question of paying probate fees, is the triggering event of probate itself. And while it is never fun to pay a tax, one of the benefits that getting probate does is it starts the clock on claims that can be made against an estate. And so, just coming back to this theme that there is some value added for this tax and the payment of the tax. One is, is that you’re getting this seal of approval from the court. And two is, is that at law, you’re actually starting the clock on many claims that can and are often made against an estate. And that too can bring…I mean it’s a type of insurance you’re paying. Because, for example, with a dependent’s relief claim, you cannot make a dependent’s relief claim in Ontario beyond the six months from obtaining probate, without some problems. I mean, there’s no hard and fast rules. There’s always wiggle room and things like that. But the basic law is, and the principle is, that you’ve got, the clock starts running when someone stands up and says, hey, I’m executor and I’m ready to administer this estate. And it makes policy sense because you don’t want executors to feel that they’re exposed for an endless period of time when they’re administering an estate. So the law has stepped in and said well, there is only so much time you have before you can make claims. And one of the trigger starting points when you’re obtaining probate is that you would announce to the world, typically, through an advertisement for creditors. So you’d start the clock running. And again, as I say, it’s a value add to this tax that you’re paying.
Suzana Popovic-Montag: And ultimately, therefore, protecting the estate trustee and the estate beneficiaries. So I think it’s an important thing to keep in mind. Another benefit of actually probating assets or probating a Will is that, in addition to protecting the…sorry…
Ian Hull: So another benefit that might be, we want to look at in terms of this whole idea, you know, as we say, we’re stepping back and saying, should we pay the tax or not? And another benefit would be the whole idea of, and we talked about this in previous podcasts, but let’s…it jump starts the process, it gets the administration going. The actual act of applying for probate sort of wakens up the process. And in some cases, people (a) don’t want to deal with the death of a loved one or (b) don’t really want to, aren’t anxious to get that part, they’re not ready to turn the corner. And what we find with our clients is, we’ll often say is look, you know what, it is a terrible loss that you’ve suffered through. But, you know, after six months or after three months or even shorter, within six months, you have to start to deal with the business side of things. And I always remind my clients that it’s driven, in large part, by the income tax, not the probate tax, but the income tax obligations that an estate has to attend to. And so, you know, sort of pushing someone into probate starts the thinking about how we’re going to deal with what is, in Canada, a primary concern. And that is, making sure that the deceased’s taxes are paid. Now you don’t need necessarily probate to pay taxes for the income tax purposes. But again, it’s a trigger point and it gets people, gets the juices flowing, so to speak, and gets people going on what is sometimes a task that they want to push to the side.
Suzana Popovic-Montag: Now we know, Ian, from a planning perspective so many steps are taken by people who try to minimize the value of their estate at the end of the day, so that that tax that they have to pay is as small as possible. But there also are, in addition to, you know, the benefits to applying for probate, there’s a lot of downside to doing a lot of fancy manipulation before, during the lifetime, in order to avoid what could turn out to be quite a minuscule tax at the end of the day. And one of the things that I’m thinking of in particular is the fact that if you start giving your assets away during your lifetime, then you’re putting those assets out of your control and in the hands of someone else who may or may not have the same plan or the same, you know, intention for those assets that you might otherwise have.
Ian Hull: And that goes, that ties right into the whole question of joint accounts. And obviously, one of the primary reasons why you…what often will happen is you plan around this probate tax is that you create these joint accounts, hoping to simply avoid the probate tax. Without getting into the legalities of all of that, it does…it is an effective step. But again, as you say, the whole issue of control comes into play.
And the other primary step that people take to avoid this probate tax, so to speak, is, of course, creating the secondary Wills. So what, or some call tertiary Wills or additional Wills. Essentially you have one Will for the assets that need to be dealt with under probate and you have one Will that don’t. And one example of that is often the corporate Wills. And it’s funny because what these Wills were set up to do was to create and to give some consistency. You would essentially create this corporate Will. And that Will would help avoid any taxes that would be paid on the probate side because you wouldn’t need probate for that specific asset. And we’ve talked about in other podcasts, there was a case in Ontario that sort of led the way to allow this to happen legally. But it raises a couple of major problems. We’ve talked about was the fact that a dependent’s relief claim doesn’t get triggered, so there could be claims against the estate if you don’t get probate of the secondary Will.
And another thing that it raises is that if you have a substantial asset in the secondary Will, you may not want to hide behind the probate fees. You may, indeed, want probate for that document. You may want to have the comfort that if your passing over millions of dollars within the corporation, that you indeed have authority to do that. And it’s just another side issue that comes back to this whole circular problem in that there are no easy answers to avoid these probate taxes. And maybe what we should be focusing on, instead of creating estate plans that deal with losing control, that deal with expensive steps to avoid the probate tax, maybe what we should be focusing on is accepting that maybe that’s a part of life and that’s a part of the process. And then, you know, creating our estate plans knowing that that is one of the taxes we’re going to have to pay. But that’s sort of, you know, sort of my own theory. And I know a lot of estate planners would disagree and they would want to work very hard to avoid this tax. But boy, we keep seeing more and more problems that get created as a result of the planning around the tax.
Okay, well so, for the purposes of today, we really wanted to highlight this issue one more time, because it touches on so many assets. And it touches on real estate based assets, on corporate assets and on bank accounts and so forth. And as we’ve said before, for example, most institutions require, financial institutions, will require probate. So it’s one of those things that we can’t necessarily avoid if what most Canadian estates are made up of is typically maybe an RRSP account, maybe an investment account, a bank account and so forth. And so the probate tax is going to need to be paid. But when you have some creative planning available to you, it’s something that you want to visit, you want to look at what techniques you can step in to avoid the tax. But keeping in the back of your mind that you don’t want to be penny wise and pound foolish, and create more problems than it’s worth.
Suzana Popovic-Montag: That’s pretty sound advice. Thanks very much, Ian.
Ian Hull: Thanks Suzana.
You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.
Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.