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Friday, December 10, 2010

To which assets does probate apply?

I'm often asked by would-be executors to clarify which of the deceased's assets are covered by a probate order and which are not. It would be easy, I suppose, if the answer were simply "all of them", but that's not the case.  The general rule is that the probate will cover everything that the deceased owns, with some exceptions.

One exception is an asset that is owned jointly with another person. Be careful here. Note that the fact that there are two or more names on an asset doesn't necessarily mean that it is jointly owned. When I mention "owned jointly" here, I am talking about true joint ownership with a right of survivorship. This is a legal relationship that is not proved by the fact that multiple names appear, as it is possible for those multiple owners to have other legal arrangements besides joint ownership.

Let's look at an example. If a husband and wife own a house together, they normally buy it in joint ownership with a right of survivorship. This is because the intention is that the house is the family home and when one of them dies, the surviving spouse will continue to own the house and live in it. If the husband, on the other hand, wants to buy a vacation property with his brother, they might decide to hold it as tenants in common. This is because each of them wants to be able to sell their half of the property, and to have their half of the property go to their wife or children should the husband pass away.

How do you know whether the deceased's asset with more than one owner was owned as joint owners or as tenants in common? Read the paperwork. If it's real estate or a mineral title, read the title. If it's an account or investment, read the name on the statement and if that doesn't tell you, call the bank or investment counsellor and ask.

So if you are an executor preparing an inventory of an estate, you do not include assets that were jointly owned with someone else. You do, however, include the deceased's half of an asset that was owned as tenants in common with someone else.

Another exception to the "include everything" rule is any asset with a named beneficiary. The assets you will see most often are RRSPs, RRIFs, pensions and life insurance policies. For example, if a deceased person owned a life insurance policy that he left directly to his daughter, you would not include that policy in the inventory because the money will go right to the daughter and never go into the estate.

An important aside note for estates in which there are RRSPs or RRIFs that are being left to an individual who is NOT the deceased's spouse: the estate has to pay the tax on these assets even though the assets don't fall into the estate. You have to include the tax as a debt of the estate on the inventory.

Are you ready for the exceptions to the exception? You DO include the named beneficiary asset if the asset says it is to go to "the estate" or "my estate". And you DO include the asset if the person named has already died (that would be the daughter in the example above).

Another exception is the RESP. That asset does name a person for whom the money is being held, but that person is not a true beneficiary. By this I mean that on the death of the deceased who owned an RESP, say for his son, the money does not go to the son. It stays in the estate and you do have to list it on the inventory as an asset.

If the deceased was part owner of a business, he or she might have a shareholder's agreement or buy-sell agreement that says the company will buy back the deceased's shares. You do still include those shares on the inventory of the deceased's estate.

As an executor, you have to do a fair amount of digging to find out everything you need to prepare the inventory, which is an important part of your application to the court to obtain probate. I've simplified the rules here as much as possible, but it's not always easy to apply the rules to individual assets on any given estate. If it's just too much for you, remember that you can always ask a lawyer or a trust company for help with the estate.

4 comments:

  1. In Alberta, does a solely owned company fall in probate and can be handled just like personal property? (like cars house etc...) Can A company owned solely by the deceased sell its shares to help pay for debits or cash distribution among beneficiarys, even if there may be a bylaw that says its shares cant be sold or transferred? I just guess im wondering how you distribute a solely owned company when there may be bylaw that say you cant when it comes to probate and wills.

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  2. Hello! I was wondering if it mattered to the court if I use the word documents in your kit and change a bit of the formatting to fit my information. I would not change the wording just formatting. Would this cause the application to be rejected. Thanks! Danita

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    Replies
    1. Hi Danita,
      Some aspects of formatting cannot be changed. For example, on the documents that have the banner (the dividing line that separates listed information from the body of the document), you would have to keep the banner. But if the banner becomes longer, that would be ok.

      Lynne

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  3. In a true joint-ownership home e.g. husband and wife purchased the home together ... what happens to the contents when one of them dies? Are the contents part of the "estate" or part of the house that goes to the surviving spouse ?

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