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.