The High Cost of Probate
Many third parties such as banking institutions and the Land Registry Office require probate as proof of authority to act as estate trustee. Unfortunately, the process of probate brings with it the widely unpopular Estate Administration Tax which is calculated on the value of the assets of the estate. As a result, estate planning methods that seek to remove assets from an estate and transfer them directly to a beneficiary are becoming increasingly popular. These include the transfers of title of real property into joint tenancies with rights of survivorship, adding joint account holders to bank accounts, designating beneficiaries in insurance policies, lifetime gifting and the use of multiple wills.
The challenge that some of these techniques brings is that when used in a way that does not ensure an equal distribution of assets among beneficiaries or when the intentions of the testator are later brought into question, they all too often become land mines associated with an increased likelihood of estate litigation.
The question becomes: what is probate and the resulting Estate Administration Tax really costing us? When avoiding probate at all costs begins to encourage risky behaviours that would not have otherwise been taken, we need to start to consider whether certain safeguards need to be implemented.
In looking to the rest of Canada, we can see in both Alberta and Quebec two alternative models. In Alberta, the probate process has created an upper limit or maximum fee that can be payable. This is currently set at $400.00 for estates of $250,000.00 or more. In this way, the incentive to attempt to distribute assets outside of the will has been largely removed.
In Quebec, they have gone even a step further. There is a flat fee for the probate of any estate, regardless of its value, which is currently set at $105.00. However, if the testator has obtained a notarial will, there is no fee at all as notarial wills are not subject to probate. The will is immediately valid upon the death of the testator and is in and of itself valid proof of the authority of the liquidator (i.e. estate trustee) to act.
Aside from the removal of incentives, there are other precautionary measures that can be taken. For instance, public legal education on the effects of lifetime transfers, joint accounts and joint tenancy could be beneficial. These estate planning tools can be effectively and safely used provided that the testator and any joint tenants or account holders have an accurate understanding of the consequences that can arise as a result of these types of transfers.
Furthermore, obtaining proper and independent legal advice beforehand is always recommended. The law with respect to joint assets is still evolving and can give rise to complex issues that can have significant ramifications for the testator, estate and the beneficiaries.
Thank you for reading.