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Monday, March 11, 2013

Is it true that not all wills have to be probated?

When  you pass away, will your executor have to probate your will? Most people don't know the answer to that, but they assume that going through probate is a bad thing. This reader asked me for information about whether wills must go through probate, and I thought many of you would like to read the answer, so here goes:
"If both husband and wife die leaving a will and leaving their entire estate to their children would their estate need to go through probate? Someone told me that all estates do not have to go through probate, is this correct?"
There are two related questions here. I'll start with the second one first, as it sets up the first one. Yes, it is correct that not all estates need to go through probate.
Whether or not a will has to go through probate depends on several factors, not all of which you can control ahead of time. The first factor is the type of asset held in the estate. Real estate (including raw land, homes, cabins, commercial apartment buildings, mineral titles etc) that is held by the deceased alone cannot be transferred or sold without going through probate.
The value of an asset will also be taken into consideration. For example, a bank may not insist on receiving a probate document to release an account with only a couple of thousand dollars in it. The same bank would insist on having probate to release an account that held a couple of hundred thousand dollars in it.
Some assets that do not require probate regardless of value are those that name a specific beneficiary, such as a life insurance policy, RRSP or pension, or those that are held in joint names with a right of survivorship (assuming the other owner is still alive).
Probate may also be required where there is some doubt about the validity of the will or the instructions in the will appear to be contradictory. And sometimes probate is required simply to set a legal date for the limitation periods set out in legislation such as family relief laws.
I've often been asked by clients to "make a will that won't need probate". Unfortunately my crystal ball has never really worked that well, so I can't guarantee that probate won't be needed. Not to mention the fact that I don't agree with the "avoid probate at all costs" hysteria that seems to take over some individuals and cause them to make mistakes that cost much more than getting probate ever would.
On to the second question. If a husband and wife both pass away, probate may be needed. In most cases, it is required because of the type of asset that is owned by the husband and wife. There is no special rule that exempts an estate going to children from going through probate.
There are a number of special tax and legal arrangements that can be set up between a husband and wife. For example, on the death of one spouse, the surviving spouse can receive an RRSP without any tax being immediately payable. Shares of a privately held company can be rolled over to the spouse. Homes are usually held in joint tenancy. When things are set up properly, there is often no need to go through probate when the first spouse dies. However, almost none of these arrangements can be set up between a parent and child.
I'd like to suggest a couple of things. The first is that anyone who has decided, without legal advice, that their primary estate planning goal is to avoid probate should talk to a lawyer in their area. Find out whether probate would be needed and whether it would even be a good idea to try to avoid probate. The second is that you avoid like the plague taking any home-made estate planning such as making assets joint with your children without talking to a lawyer.
If people only knew the problems they bring on their families by assuming that probate should be avoided and assuming they know how to achieve that,nobody would ever do it. I'd lend them my crystal ball if I could get it up and running.

1 comment:

  1. Going forward my mother & I no longer own property so we will not probate if one of us dies. We took steps to put our vehicles in joint names, and all our bank accounts are in joint names. I have had enough of government & the legal system ripping us off. Not saying that would work for everyone but it works for us.


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