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Tuesday, June 23, 2009

The "Avoiding Probate at all Costs" Issue

One of the questions that I am asked on a regular basis is how to avoid probate. The concept of avoiding probate is raised in articles and blogs all over Canada and it is usually promoted as something we should all try to do. The reason given for avoiding probate is that probate fees can be high. The usual advice is to put property into joint names (usually with your children) to circumvent the probate process.

This is where people need to stop and consider the facts. In Alberta, we have the lowest probate court fees in the country. The highest your probate fee can be is $400, no matter how many millions of dollars are in your estate. If you are reading articles that say that probate fees will run into the tens of thousands of dollars, the article is probably written in Ontario or British Columbia, where probate fees are a percentage of the estate and are very high.

Having established that the number you are working to avoid is $400, you need to think about what you are risking by putting your property into joint names with your children. While having property in joint names between husband and wife is usually a good idea, I almost never advise putting it in joint names with your children.

Consider the case where Mr. and Mrs. Smith put their home in joint names with their son, Joe. They do this only to avoid probate at some future time. A few years later, Joe gets divorced from his wife. Legally, he is just as much an owner of the Smiths' home as they are. Now they risk losing their home and tens of thousands of dollars in equity because they tried to avoid paying a $400 court fee.

Unfortunately, quite a few people have already taken this step without legal advice. I rarely give a presentation without someone approaching me afterward to say they have already put their home in joint names with their children and asking whether it was a good idea. I do not mean to say there is never a good reason for putting assets in joint names with children, but in my opinion, if it is done solely to avoid probate, it may not be the best solution when balanced against the risk.

Before putting your assets - either real estate or investments - into joint names with your children, find out the facts and the risks by talking it over with an experienced estate planning lawyer. The whole idea behind estate planning is to set things up so that they run smoothly and give you peace of mind, and putting joint names on property may do just the opposite.

22 comments:

  1. What are the implications for me and my elderly parents of purchasing or jointly owning their home. I am single and will remain so so joint assessts with are partner will not be an issue.

    ReplyDelete
  2. Hi. Thanks for your question.

    When you and your parents are deciding whether or not to put your name on as a joint owner of their home, it's a matter of weighing risk against benefit. Everything you decide in estate planning boils down to that.

    What are the risks?
    For you, the risks are minimal, as you are not the one who financed the asset in the first place. It's not where you live (as far as I know). So if for some reason the property were to be lost, you wouldn't lose your home or a significant portion of your assets.

    Your parents, however, stand to take a pretty big hit to their finances should the property be lost.

    As you've stated, there is no spouse and therefore no potential divorce to worry about. That's a big risk removed.

    However, there are other ways in which you could inadvertently cause your parents' home to be lost. For example, you could cause a major car accident in which you are being sued for millions. You could give a personal guarantee for a business venture which fails. Either of those situations could cause creditors to go after all of your assets, including your parents' home.

    Another downside for your parents is that if your name is on the title as a joint owner, they can't sell or mortgage their home without your written consent. That means a loss of control and independence for them.

    What are the benefits?
    You haven't mentioned whether you are an only child or not. If you are, you are likely the person who is going to inherit the house in any event. Putting the house in joint names with you might avoid the need for getting probate from the court, but that's only the case if your parents have no other assets.

    If there are investments,a fairly large bank account, a cabin, mineral rights or any business interests, the executor will have to apply for probate anyway.

    In other words, if the house is being put in joint names just to avoid probate, that may or may not be effective, depending on what else is in your parents' estate.

    If you are not the only child and your parents want to treat all of the children equally, and you get the house, there has to be enough in your parents' estate to give the other children an amount equal to the value of the house. For most people, that's not possible.

    I hope this answer gives you the information you need.

    Lynne

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  3. My brother died and his ex wife has stated she has a 'holographic' will which names only one of his four children as beneficiary. He has set beneficiaries for his RRSPs, pension and life insurance which include only two of his four children. There is no identified executor for his estate. Do his adult children not included in this will have any rights to his assets?

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  4. My mother recently passed and my father who is the beneficiary of her estate doesn't need or want her money partly to avoid future tax implications with this new wealth. He wants to pass her money directly to me and my siblings. Is that possible and would their be tax implications to us kids?

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  5. My in-laws open property in BC and my husband is listed as a joint owner on their part-time home and rental condo strata property. These properties are rolled into a single mortgage and there is still a considerable amount that needs to be paid off. My husband is a co-signer on the loan. I think this is a very bad idea because I am worried that poor financial decisions on the part of his parents might impact our finances and home in the United States. What are the dangers/risks that my husband and I face?

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  6. My father in law recently passed away. He left a will with instructions for dispersing funds and property. As he owned his house singularly, and not joint with his second wife, he left the house to his son (my husband). Does probate issues come into effect in this instance?

    ReplyDelete
    Replies
    1. I'm not sure I'd call it a "probate issue", but yes the executor will have to get probate to transfer a house that's in one name only.

      Lynne

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  7. When a husband and wife have a limited business together, sharing 50% of business each, and one or the other passes away, how are taxes affected if there is no will. Does this need to go through probate, or would the shares automatically be placed in the spouse's name?

    Marilyn

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    Replies
    1. Hi Marilyn,
      Shares of a company will never "automatically" go to the spouse. A will would do that. You also could check to see whether the terms of the buy-sell or shareholders agreement covers this situation. Unfortunately, most husband and wife business owners don't seem to think they need a buy-sell, so there might not be one.

      You would then have to look at the intestacy laws in your province. Spouses don't automatically get everything, particularly if there are children of the marriage.

      The most tax-efficient way to deal with shares of a private company is often a rollover to a spouse. By 'rollover' I mean that capital gains tax on the shares is not paid until the spouse who receives them either sells them or disposes of them. This may still be possible without a will, depending on how much of the estate the spouse is going to get, and the value of the shares compared to the value of the entire estate.

      If there is no will, there is nothing to probate. However, it will most likely be necessary for the spouse (or failing that, someone else) to apply to the court to become the administrator of the estate.

      Lynne

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  8. Lynne: My boyfriend of many years died quite suddenly in January 2013. Altho there was time for his sister to quickly arrange, in the hospital, a 'will' naming herself and the brother as Executors. She did bring 2 people to witness whatever was signed in the hospital room. My bofriend had 3/4 million dollars in cash in the bank, and 2 children which he would obviously provide for. What I don't know is if he provided for me. HIs sister kept all that information confidential on that fateful day. Now 6 months later, I did go to the Supreme Court to request a copy of the will and was told one has not been filed. My questions are a little compound: is it possible for her not to file the will, is it possible for her to administer as if a will was not created (altho I think it was created that day), and what can I do to find out ...anything. I do believe he would have left me something. I just have no idea how to get to the bottom of things, of where to go from here, as no will has been filed at this time. I really need some guidance. Thank you.

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  9. How do we cash a govt of canada death benefit cheque without probate? Cheque is made out to the estate of the deceased c/o me.

    ReplyDelete
  10. If an individual lives in Ontario but her executor lives in Alberta, in which province is the estate probated?

    ReplyDelete
    Replies
    1. The general rule is that an estate is probated in the province in which the deceased lived.

      Lynne

      Delete
  11. I have been paying tax on land in BC since my husbands death in 1997. An oversight by bank in BC kept the land from being transferred to me, the sole benefactor and executrix of his will, at the time of death. The land was valued at X$ in 1997 and has since increased to 7X$. I would like to know how to transfer (probate) land to my name, or that of a trust. We lived in Alberta at time of death and where the will was processed. I need to know what tax implications (CRA) are involved and how much probating the property to my name will cost. I have received differing views from several different land lawyers. It is very frustrating. Help

    ReplyDelete
  12. Hello,

    My uncle passed away recently and I was left a percentage of his estate. He was in a nursing home with private care that was charged outside of the rent fees. The fees (as I am told) we direct wihdrawl from the executors bank account. He was charged an extra month from his account (not the uncle who passed). We are being told that the will cannot go for probate and the monies cannot be sent to the beneficiaries until the money is refunded back into the executors account. I feel we are out of the loop and have to call the executor for information and we are being told it is out of his hands. Do we have any rights? Just looking for some information.

    ReplyDelete
  13. Hello,

    My uncle passed away recently and I was left a percentage of his estate. He was in a nursing home with private care that was charged outside of the rent fees. The fees (as I am told) we direct wihdrawl from the executors bank account. He was charged an extra month from his account (not the uncle who passed). We are being told that the will cannot go for probate and the monies cannot be sent to the beneficiaries until the money is refunded back into the executors account. I feel we are out of the loop and have to call the executor for information and we are being told it is out of his hands. Do we have any rights? Just looking for some information.

    ReplyDelete
  14. Are joint bank accounts and joint investments (GICs) subject to probate and if so how is the value of the deceased estate calculated?

    ReplyDelete
    Replies
    1. Whether they are included in probate depends on who they were joint with. As a general rule, joint property (including accounts and GICs) belongs to the survivor, and therefore is not included in probate. There is an exception to the rule when the account/GIC is jointly owned between a parent and child, and the parent passes away. In that case, unless there is further evidence, the entire account/GIC is part of the estate and subject to probate.

      Lynne

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    2. Thanks for reading and replying to comments even on this very old post! :)

      A followup question: what are examples of evidence that might exclude a parent-child joint account from probate? Would, for example, a letter of intent from the parent (designating it as a gift, for example) suffice? I'm asking because my elderly father is offering to make me a joint holder on his accounts (I'm his only relative and sole heir) in order to avoid probate, and I want to be sure it's the right move.

      Delete
  15. I own a house in Canada and if I leave it to my wife (per my will), would probate fee apply on my death? We are both non-residents

    ReplyDelete
  16. My dad left over 60,000 to my older sister and I, she is his POA, executor or his estate and is joint on his bank account, when she went to bring his death certificate to the bank they put a hold on his money saying it had to go into probate.
    If she is joint on his account and was his POA and executor does the money not go to her? my dad only made a holographic will which he thought would suffice. He did have other children but has given them and their mothers money over the years, he did not give any to our mom or to us and wished to make up for that by leaving us the money he had left. Does it have to go into probate? Or can my sister take it out of the bank legally? we live in Ottawa, Ontario

    ReplyDelete
    Replies
    1. The bank is correct that the money in the account belongs to the estate and not to your sister. The reason it does not go to her even though she is a joint owner is that the law says when a parent adds a child to an account (or any other asset), that account belongs to the estate and not to the child.

      Being your father's POA does not make it any better. In fact, if she had POA there was no reason to add her to the account. He could have cleared all of this up by having a lawyer make a will for him, but as you said, he did all of this without legal advice. That rarely works out well.

      The reason the bank is insisting on probate is that your father has left unclear instructions and the bank is not about to release the money to anyone without a court order. A probate order is a court order that will allow the bank to act on your father's instructions without them being dragged into a lawsuit.

      Lynne

      Delete

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