Death and taxes are the only certainties in life, Benjamin Franklin said. But what happens when you mix those two topics together? You get something many Canadians are very uncertain about: your will and probate.
Luckily, we've got questions and answers that may help you feel more confident.
(Please note that the information provided in this article does not apply in Quebec. Quebec does not charge probate fees. Notarized wills do not have to be approved in this province. Only handwritten wills and wills made in front of witnesses must be validated by a court or a notary by the probate procedure. In these later cases, fees are applicable – they’re generally more than $1,000.)
1. What is probate?
Probate is an approval process confirms the validity of your will and the appointment of your executor.
2. What’s an executor?
An executor is someone who can carry out the terms of your will and look after your assets after your death. If you’re writing a will, you’ll have to name an executor. It could be a family member, a lawyer or someone you trust. If you die without a will, the court may appoint an administrator for your estate.
Please note that “assets” refer to anything you own that has financial value. This could be a home, a car, a savings account or an investment. These assets are what make up your estate.
3. What if you don’t have a will or your executor can’t do the job?
Then the courts have to appoint an administrator – and the costs will be similar to probate.
But it really helps if you have a will – here’s why.
4. Who does what in the process of probate?
Let’s assume we’re talking about your own will.
- You don’t have to do anything, because probate is a process that affects your will after your death.
- Your executor. Remember, this is the person responsible for carrying out the terms of your will, making sure your debts are paid, etc. After your death, your executor must secure the assets of your estate. They’ll then determine whether your estate needs to go through probate. Even if it’s not a legal requirement, your executor may apply for probate to ensure that they can rely on your will as being the final version of your written instructions.
5. Why does an executor have to apply for probate?
Each province has its own rules. But generally speaking, your executor must apply to your province’s probate court for approval of your will if you:
- died in debt* (Read more: What happens if you die in debt?);
- had bank accounts, registered investments or life insurance policies without a named beneficiary and if the financial institution is not prepared to pay out the funds without probate; or
- if you owned real property that isn’t being directly passed to your spouse or common-law partner through joint ownership.
(*Please note: If the estate is essentially bankrupt, then the executor usually doesn’t apply for probate. Why? Because there’s no money to cover the cost.)
6. How does an executor apply for probate?
It’s a good idea for your executor to start by talking to a family lawyer and searching online for “How do I apply for probate in (province name).” Why? Because each province’s rules, approval body, process and costs differ.
- Your province’s probate court. (In some jurisdictions, this is called the Surrogate Court.) This is the official body that grants probate approval. It’s sometimes called “letters probate”, but a different name may apply in your province. If there’s no will or executor, the court grants “letters of administration.”
7. What could happen if your executor doesn’t go through probate?
Without probate, your executor can hit a wall.
Imagine if your executor contacts your bank, mutual fund company, or pension plan provider, or the land title office with a non-probated will in hand. Your executor then asks them to hand over your money or register a transfer of property title.
Those institutions will want proof that:
- you’ve died,
- the will is valid and is the final version,
- your executor is the person named in your will, and
- they won’t be sued if anyone contests the will.
Consider this: Why would a bank risk a lawsuit for handing out your money to the wrong person? They’re not likely to take a risk by assuming your non-probated will is valid. Instead, the bank may refuse to release your money until it gets the legal protection. And, they can only get this legal protection from approval of your will by the provincial probate court. That’s the big upside to probate.
8. Are probate fees considered as income tax?
Probate fees (which in Ontario are called Estate Administration Tax) and income tax are not the same thing. (In fact, probate fees aren’t deductible by the estate for income tax purposes.)
Depending on your province of residence, probate fees can be charged as a flat rate or as a percentage of your assets, not your income. And your estate may need to pay income tax on assets that don’t even need to go through probate.
9. How can I avoid doubling my probate costs?
Do you want to leave your entire estate to your spouse or common-law partner? In such cases, it’s smart to insert a common disaster clause in your will. Without it, here’s what could happen: If you or your spouse died, your assets would go through probate twice. Once for your will and once for your spouse’s will.
To avoid that, wills with a common disaster clause usually specify that if you and your spouse die within a short time of each other (such as within 30 days), your estate would instead go to contingent beneficiaries – like your children – rather than to your spouse.
10. How does probate affect joint accounts or assets?
Many people believe that assets jointly held by two people don’t need to go through probate if one of those people were to die. There’s some truth to that. For example, joint accounts usually transfer directly to the surviving account holder. But check the wording of your account agreement, to confirm. It’s wise to have a lawyer or accountant reliably sort through the fine print of your situation.
For instance, let’s say the joint title on your home has yourself and your partner listed as owners on the property’s deed. This joint title may be registered in a way that includes right of survivorship. That means that if one partner dies, the surviving partner gets full title to the home and it doesn’t have to go through probate. This scenario can make a lot of sense, both now and after one of you dies.
But if the only reason you want joint title on an asset now is so your estate can avoid probate costs later, beware. Putting another person’s name on your assets can open the door to serious problems while you’re still alive. Two examples:
- You jointly own a house that’s debt-free. But if your joint owner has unpaid debts, then their creditors may make a claim against your home.
- You have some money you’d like your child to get when you die. So you decide to open a saving or investment account now, in both your names. But if only one signature is needed on withdrawals, your child could clean out your account. And if they split up with a spouse or common-law partner, your child’s ex might claim a share of your money. And, what if you don’t document the fact that the joint owner must get the proceeds of the account for their own use after your death? Then another heir may claim that you made the arrangement strictly to help you manage your finances. In this case, the account may form part of your estate, which could then make it subject to probate.
11. Is there probate for life insurance or registered accounts with named beneficiaries?
There’s no probate for life insurance or registered accounts – such as registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs) – with named beneficiaries. Luckily, those assets usually pass to those beneficiaries outside the estate and don’t go through probate.
It’s best to name a secondary or contingent beneficiary as well, in case your primary beneficiary dies before you do.
- How to use insurance to protect and build wealth
- 6 really useful things you can do with your TFSA
- 6 things you may not know you can do with your RRSP
12. Can I have two wills - one with probate and one without?
In some provinces, you can have more than one will. An Ontario court case (Granovsky Estate v. Ontario) set the example in that province. The case recognized that you can use one will to give out assets that go through probate. And, you can use a second will to give out assets that don’t need probate. For instance, you may have shares in a private corporation where shareholders or directors have agreed not to require probate.
Keep in mind, the two wills need to be carefully worded and dated, so one doesn’t cancel out the other. You’ll need to speak with a lawyer who specializes in estate planning to make sure it’s done properly.
13. What about cash gifts?
Instead of using a probated will to distribute all your assets, you can give some cash gifts now while you’re alive and well. In Canada, there are normally no tax consequences to a non-spouse recipient who’s over the age of 18. (See Amounts that are not taxed, on the Canada Revenue Agency’s (CRA) website).
But there may be one notable exception. Let’s say you give a cash gift to someone while you owed money to the CRA. In that case, the CRA may reach out to the recipient with questions. They may even seize or take the cash gift back from them.
14. Can I use a trust or private company to avoid probate?
It’s possible to set up a trust or private company to own your assets so they won’t go through probate. Talk to your lawyer about the costs of creating a trust or company. But it’s important to note that avoiding probate fees shouldn’t be your only reason for following a particular strategy. Sometimes, the cost of probate can be much lower than the cost of avoiding it. For example, in Alberta, one of the provinces that charge low probate fees, the most you’ll pay for probate is $400.
15. Are probated wills private or public?
Once probate is granted, your will becomes a public document, available for anyone to view. So think twice before using your will to have the last word in that feud with your sibling. That is, if you don’t want to air your family’s dirty laundry.
Probate is a complex topic. Experts spend their professional lives learning to understand it and give helpful advice. That’s why it’s a very good idea to consult a professional both when you’re making your will and when you’re the executor for someone else’s. And expert advice about estate and financial planning can help you not only leave your estate in good shape, but also make the most of your retirement years.
- Got more questions? Talk to an advisor near you.