Knowing What Works Best

Do you remember having a simple conversation over a cup of coffee and being asked “Did you know”?  By chance, did you catch yourself thinking about your own situation?  The phrase, “A little knowledge is a dangerous thing”, can spook people into doing the wrong thing.  When the conversation lands on the cost of settling an estate upon death, a little knowledge will NOT do.   

    

When the term, “probate”, comes up in those conversations, a tiny spark ignites and creates a fire.  Most people desire nothing more than to extinguish the flames caused by probate fees which threaten to torch their estate’s wealth and short-change their beneficiaries.   

But what if...probate costs are not the enemy? What if…the process of probate is intended to get your property into the hands of your intended beneficiary?  Then, the cost might be worth every cent to fulfill your wishes!   

TEST VALIDITY

When you die, the first question generally asked by anyone and everyone, “Did he/she have a will?”  Once confirmed, then the instruction which follows is, “The will needs to be probated.”  

The word probate sounds mysterious, doesn’t it? The formal definition for the noun “probate” refers to “the official proving of a will” and the verb, “establish the validity of a will.”  The term originates from the Latin word “probare” which means “to test, prove” and probatum, “something proved”.  These two combine to create “probate”.  

This makes sense!  The courts test the last Will and Testament of a deceased person to prove its validity and confirm the named executor has the authority to oversee the estate of the deceased.

    

When the court stamps their seal of approval, your family and other third parties (banks, land titles office, brokerage firms) know with certainty the will has been certified and the executor officially has the legal right to distribute or transfer the assets to the beneficiaries as named in your will. 

The application for probate involves the preparation of specific documents.  The website for the Courts of Saskatchewan (under Wills and Estates) provides a list of the required forms.  Generally, most people would seek a lawyer’s assistance in the preparation; however, it’s not a requirement. Most executors, however, discover the task of completing the appropriate forms to be time-consuming and choose to work alongside with the lawyer on the deceased’s estate. 

Once the formality is complete, the courts issue an official document referred to as “Letters Probate”. This important document gives the green light to the executor, appropriate institutions and agencies to follow through with your wishes.  

DETERMINE THE COST

Every estate is not required to go through the probate process.  Specific circumstances will warrant the need for probate such as: the value and types of the assets held in the estate, whether the deceased died without a will, or whether the estate faces legal actions.

In some cases, when all the assets bypass the estate (pass outside the will) probate will not be necessary. Assets held jointly with rights of survivorship are transferred to the surviving joint owner upon the presentation of a notarized death certificate. Likewise, when a designation of beneficiary is named on registered retirement savings and pension plans, life insurance policies, and Tax-Free Savings Accounts, these assets also pass outside the will and do not form part of the deceased’s estate.  Only those assets owned solely by the deceased accumulate in the estate and are distributed according to the instructions in the will.  An executor determines which assets are held inside the will when they complete an inventory list.               

   

The part of the probate process which upsets most people is the associated fees.  The fees are not standardized across Canada rather every province has a different fee structure for administrating probate. Although the term “fee” is used, most see this as a tax fixed by the provincial government and would rather choose to avoid paying the so-called “tax”.  In Saskatchewan, the probate fee is a flat charge of $7 per $1,000 of assets; other provinces impose probate fees at various increments as the value of the estate increases.  Keep in mind, the lawyer’s costs, associated with the settlement of the estate, are in addition to the probate fees. 

PLAN FOR THE RIGHT REASONS

Your will should be designed to satisfy your wishes.  Arranging for all your assets to pass outside your will might not be in the best interest of your beneficiaries or be distributed the way you would hope. 

The concern isn’t when your accounts and real estate are held jointly with your spouse or when your spouse is designated as your beneficiary on registered retirement or pension plans and life insurance. The concern is when the person is anyone other than your spouse, most likely your children.  (The situation becomes complicated when you make your property joint with a second spouse and your original intent is to leave property to the children from your first marriage. You can’t give away something you don’t own.)    

Many factors attribute to the overall picture.  Your main focus may be to avoid probate fees.  However, your strategy without legal and tax advice could prove to be fatal.  Watch closely if any flags wave, “Proceed with Caution”.

Concerns raised in a previous blog, Joint Tenancy as an Estate Planning Tool,  are still the same today.  When you opt to include someone on your investment accounts or title of real estate property, you give up full control and now share the ownership of these assets with the another person. The drawback with joint names on property is you would require the other’s consent if you decide to sell.  The downside--they may be reluctant to oblige.   Another concern is the possible tax implications. In the eyes of Canada Revenue Agency (CRA), you are disposing of half of your interest.  The strategy may trigger a tax liability in the same way as if you sold your interest to any outsider.   Always check with your accountant or lawyer to ensure your strategy to minimize the probate fees on your estate is justifiable and in your best interest.

Cash held in an estate could be used to cover the cost of the probate fees and final estate expenses. A life insurance policy could be used for this purpose.  Literally, the insurance acts as a “life saver” in circumstances when a sizeable estate is owned solely by the surviving spouse and the number of beneficiaries is significant. The assets are able to flow into the estate and the death benefit from a life insurance policy can help cover the final costs. Once all the expenses are paid, when the dust settles, then the assets and remainder of the estate can be shared as outlined in the will instructions.  This creates a more equitable distribution among the beneficiaries.   

INFORM YOURSELF 

At the beginning, I mentioned, “A little knowledge is a dangerous thing”.  BUT I also believe knowledge is power.  A wealth of information is available about probate.  An entire chapter has been dedicated to this subject in Sandra E. Foster’s book, You Can’t Take It with You.  Another valuable resource is the website of The Public Legal Education Association of Saskatchewan (PLEA).   They contribute extensive details on Wills and Estates. Our important takeaway from all this knowledge is to fully grasp how this applies to our unique circumstances. 

Although many would prefer to reduce the cost incurred with the settlement of their estate, this may not be possible.  Our desire should rest on making the right decisions.  Our sincere intentions guide us to search for suitable strategies.  Probate and legal fees may be necessary to appropriately execute our wishes and ensure our family members are treated equitable.  Walking through the many possibilities with a professional advisor is the ideal course of action to achieve the best outcome.  For our benefit, the call to action is to be informed.   

The Need is Great

No one should ever have to encounter a loved one dying intestate, or in other words, without a last will and testament.  Dealing with and accepting a person’s death is beyond difficult.  To have no final instructions, which a will offers, is unimaginable.  To have no person in charge, which is the role of an executor, adds confusion. If you haven’t written your will, or equally as risky you haven’t reviewed your dated will, gaining an understanding of the intestacy rules may push you to do so.   

The Need to be Aware

Before diving into the legislative acts, the story of the “infamous holograph will” may add a measure of urgency to your quest to write your will.  Global News aired Cecil Geo Harris’ story of his “tractor fender will.”

On June 8^th, 1948, this Saskatchewan farmer encountered an unfortunate accident.  He was pinned under his tractor.  Realizing his predicament and the possibility that he may not survive, he etched a sixteen-word hand-written will on the fender of his tractor. It read, “In case I die in this mess I leave all to the wife. Cecil Geo Harris.”

Regretfully, he didn’t survive but his will was found by the courts to be a valid holographic or handwritten will.  His final wishes were made known on a fender of a tractor.

Envision Mr. Harris’ dilemma in those crucial hours as he lay pinned under the tractor.  Regret may have weighed heavily on his mind for not doing what he should have done sooner. He understood the seriousness of not having a will and intentionally scribbled his final words.  Today, his ordeal is still talked about and studied in law textbooks on wills and estates. His case continues to be publicized so that others may avoid the problems that may arise if they don’t have a will.

  

The Need for Education

You may naturally assume in Mr. Harris’ case that he didn’t need a will based on the premise that his wife should have inherited everything.      

Here’s a question to test your understanding and offer that back-to-school nostalgia. This appeared in the course, Living Wills, Forms of Property Interests, Intestacy, and Probate, offered by The Canadian Institute of Financial Planning. 

Mr. Smith, a client, does not see the need for preparing a will. He is married, has two adult children and an estate valued at $1.4 million.  If he does not prepare a will, which of the following would be FALSE?

A.  His estate would be distributed according to the provincial intestacy legislation.

B.  The estate would be subject to probate fees.

C.  The distribution of the estate would be held up until the completion of the probate process.

D.  His spouse would receive all of his assets.

  

How did you respond? ... Well, the correct answer is D.

Sadly, Mr. Smith’s spouse would not receive all of her husband’s assets because of their two adult children.  We might think this shouldn’t apply because they’re not financially dependent on their father… but according to most provincial intestacy legislation, a spouse is entitled to receive a preferential share, a set amount of the estate. The reminder above this preferential share is then divided between the spouse and the surviving children or grandchildren. The children share in the wealth regardless whether they’re entitled to the property. Some may believe the intestacy formula is acceptable.  However, depending on the size of a person’s estate and personal circumstances, the spouse may not have adequate financial support. The situation becomes problematic given the time of passing and the spouse’s age and ability to earn an income.  Only a valid will would clearly define the appropriate distribution between a surviving parent and children.    

The Need for Intestacy Legislation

When you decide not to write a will, then you choose to leave the settlement of your estate in the hands of the courts. You may be hard-wired into believing the courts will treat your family fairly.  However, your treacherous tactic of relying on the government-made plan can unravel your family and permanently sever relationships.

When you make the choice not to write the most important document of your life, you should examine the one the government has written for you. Every province has put in place legislation; the Government of Saskatchewan dedicates a page on their website with pertinent information related to When the Deceased does not have a Last Will and Testament.    

The Government of Saskatchewan spells out the guidelines for distributing assets according to a formula in their The Intestate Succession Act, 1996. Definitely the one-size-fits-all rules are not appropriate for everyone but it’s the gamble a person takes when they don’t design their own will.  Certainly, some assets may pass outside your will if you have designated beneficiaries on your life insurance policies, pension plans, RRSPs and RRIFs or if you own property jointly with rights of survivorship.  You may even have a partnership or shareholder agreement in place for your business interests. However, other assets may be owned solely in your name and, therefore, will become part of your estate.    

Aside from the assets, let’s not overlook the most significant piece. The courts must appoint a person to act as your administrator.   Family can apply for the job. The list of eligible persons is lengthy. (Surprise, it also includes creditors). One can expect controversy to arise in any family if more than one individual steps forward and applies for the role.  However, everyone who chooses not to apply must renounce their right and give consent to the appointment.  The paper work is onerous. Delays are inevitable. The choice of administrator may not meet your approval but the fact is you’re not alive to protest.  Only when you are alive do you have the opportunity to define your own rules related to the appointment of your administrator and distribution of assets. 

The Need for Other Government Legislation

The daunting consequence of dying intestate is the “fight” your loved ones may need to undertake for their rightful entitlement.  No one should have to go through a costly legal battle to do this.  Various legislation provides for and protects your loved ones but they may need to plead their case to the courts.

Not all provinces and not all legislation within the same province recognize a common-law spouse in the same matter.  With so many different acts in Saskatchewan, The Intestate Succession Act (1996) and The Wills Act (1996) offer a definition while The Administration of Estate Act, for one, does not. Common law spouses may need to obtain a court order to declare they are a spouse and provide supporting evidence based on a number of factors.

Same-sex and opposite-sex common-law partners may also need to rely on other legislation, such as The Dependents’ Relief Act (1996), to obtain their rightful entitlement. This same regulation also applies to any dependents who require financial support from an estate.

When you die without a spouse and without a will, the Guardian and Public Trustee will step forward on behalf of minor children under the age of majority and name a guardian for them. Any inheritance rightfully entitled to a child will be held in trust until they reach the age of majority.  You can visualize all the twists and turns. Immediate concerns arise from relying on the Public Trustee to choose the ideal guardian and trustee.  From emotional standpoint a child’s welfare depends on a suitable match with a loving substitute parental figure. From a financial standpoint, a young adult potentially could squander their inheritance too quickly.  I don’t want to belabor the point but formal instructions outlined in a will could avoid the confusion and drama.
         

     

The Need to Understand

The intestacy rules appear relatively simplistic and straightforward when divvying your estate.  The responses appear to require a simple “Yes” or “No”.  But is it that easy?  Most intestate situations are not.  

Do you have a spouse?  As discussed previously, your province’s rules determine whether your common-law spouse is included in the distribution.   

Do you have children?  The wording in the intestacy legislation refers to the term “issue”. By definition, issue means “all lawful lineal descendants of the deceased” which broadly encompasses all children, grandchildren, great grandchildren, even those born within or outside of marriage and those who are legally adopted. In some provinces, children who are conceived, but not yet born at the time of their parent’s death, may also be included.  

Below depicts the order of distribution from Saskatchewan’s Intestate Succession Act and the questions progress until you have a definitive answer.  

• Do you leave a spouse and no issue?

• Do you leave neither a spouse nor issue?

• Do you leave no spouse, issue, or parent?

• Do you leave no spouse, issue, parent, or sibling?

• Do you leave no spouse, issue, parent, sibling, nephew, or niece?

• Do you leave no lawful heirs?

From others’ experiences, we know distant and unknown relatives tend to come out of the woodwork if they can lay claim to an estate. However, if there is no one who will inherit your estate, then your wealth will be acquired by the Government of Canada through the Escheat Act.

The Need to Care
 

Advisors are looking for ways to crack the code to convince more people to write their Last Will and Testament.  Stories, like that of Cecil Geo Harris, need to reach those who procrastinate in drafting this important document.  No doubt, Harris didn’t wake up that morning with thoughts of a pending accident or his death. Fortunately, he had sufficient time to fully understand his mess.  With some time, a pocket knife, and the ability, he cared enough to etch a short-worded will on a tractor fender.    

For no other reason, the intestate formula written by the provincial government should make people care about their families to ensure their loved ones are not left to deal with the aftermath of an intestate.  These points extend their reasons for caring even further:

• Higher administration costs with intervention from the courts

• Additional income taxes without the proper estate and tax planning strategies

• Lengthy delays in the settlement of an estate

• Reassurance of financial support to dependents

If you know any family or friends who have not written their Last Will and Testament, encourage them to: 

          Acquire legal advice from professional advisors as soon as possible. 

          Avoid relying on advice from family, friends, and neighbors about legal matters. 

          Absorb all the information about the consequences of dying without a will.

I rest my case but maybe you have something to add to this conversation.  Your comment is welcomed below.