November 24th, 2023

Optimize your estate with probate planning

On Tuesday, November 21st, we hosted a wealth management event of particular interest to families who wish to optimize the transfer of wealth from one generation to the next. The focus was on understanding the issue of probate fees, and how to mitigate their impact.

The first speaker was Laura Ross, CEA, MBA, an estate consultant who specializes in working with estate executors on a full range of duties, from selling properties and navigating government agencies to working with lawyers and wealth managers such as Cumberland Private Wealth.

She was joined by Marni Pernica, TEP, an estates and trusts lawyer who focuses on estate, income tax, and succession planning, including cross-border planning, the preparation of wills, powers of attorney and trusts, assisting with estate administration, and the main topic of our session, estate administration tax, also known as probate.

Both experts shared information, insights, and anecdotes that helped illuminate what probate means, how it can reduce a family’s net estate assets, and some of the strategies that can potentially reduce its impact.

Understanding probate

Probate is the process of the courts formally accepting a will, or, if the deceased did not have a will, the process of appointing someone to act on their behalf. The court seeks to verify that the person has indeed passed away, that they are in the fact the author of the will, and that the will is valid.

In exchange for this service, the province of Ontario, charges 1.5% on the total gross value of your estate above $50,000. It is important to note that this tax is not applied only to the capital gains within your estate, but to its entire market value. That’s $15,000 per million, which, when applied to all of your real estate, securities, and other assets, may be not be an insignificant sum.

In addition, when someone passes away, any assets that are subject to probate are frozen and cannot be sold until probate is completed, which can take 6-12 months. Laura shared the example of an executor who was out-of-pocket more than $100,000 because no estate planning provisions were made for funeral expenses and the cost of maintaining the deceased’s home during probate.

Another consideration when it comes to probate is that, once a will is filed with the courts, it becomes part of the public record. Many families wish to minimize the assets that are subject to probate to protect their privacy.

Strategies to optimize your estate

Our speakers shared many pieces of valuable advice – here are just a few of the key points around effective probate planning:

Create a financial asset summary. When someone passes away, their executor will be responsible for locating and valuing all of their assets for the purposes of probate. It is a good practice to create a financial asset summary that lists all of your insurance policies, bank accounts, investment accounts, properties and other assets. This will greatly assist a future executor. During this process, you may also discover opportunities to consolidate and simplify your affairs.

Consider joint ownership. When someone passes away with assets such as a home, investment account or bank account held in joint name with their spouse, those assets can pass to the spouse on a tax-free basis. It is advisable for couples to review which assets may be owned jointly, thus deferring any probate or other taxes until the passing of the second spouse.

Review your beneficiaries. The proceeds from certain types of financial assets, such as life insurance policies and registered investment accounts (RRSPs, RRIFs, and TFSAs), can pass tax-free to named beneficiaries. It is wise to review these accounts to make sure that the correct people have been named.

Consider a Bare Trust. A Bare Trust involves having a “primary will” for certain assets that must be subject to probate, and a “secondary will” that addresses certain other assets that you have transferred to a corporation or to joint ownership with an adult child in order to avoid probate.

Explore an Alter Ago Trust or Joint Partner Trust. These strategies are only available to taxpayers 65 years or older, but might allow you to roll a principle residence, securities, or other assets into a trust without triggering tax, and later transfer those assets to the next generation without probate.

Both speakers explained that there are no one-size-fits-all solutions for probate planning. There are many nuances to consider, including the specific dynamics of your family, set-up costs, ongoing tax filing requirements, and the precise legal language required to execute some of these strategies successfully.

However, with the right professional guidance, probate planning can preserve assets, save time, enhance privacy, and potentially provide protection from creditors. The range of solutions is wide, and, judging by the robust Q&A that followed this presentation, many listeners discovered solutions that may be applicable to their personal situations.

For a more detailed discussion of the event or for access to a video replay, please contact your Cumberland Portfolio Manager.

Please note that this article does not constitute advice, as every situation is unique. Please consult the appropriate financial, tax and legal professionals for personalized advice before taking any action.