Does a low dollar amount mean that an estate doesn't need to go through probate?

What happens when an estate is small? Is probate waived because of the low dollar amount? Not always! A reader sent me a note about this and I thought many of you would be interested in the answer.

Here's the question:

"My mother's sister recently passed away. My mother is the sole beneficiary and the trustee of the estate. Can she pay outstanding bills prior to probate? Does she need to probate the estate, as it has a value of less than $15,000?"

Yes, an executor can pay bills prior to receiving Letters Probate. In fact, most of the time it's a good idea to do so, as it helps to avoid penalties, late fees, or interest that eventually would have to be paid out of the estate. The authority to do this comes from the will itself, rather than from the probate.

If the bills in question include a funeral bill, your mother can submit the bill directly to the deceased's bank and ask that it be paid from the deceased's account (assuming there is enough money in the account for that). Sometimes a bank will even pay other bills that are clearly the deceased's bills, but that is in the discretion of the bank itself.

If your mother pays the deceased's bills or the estate's bills out of her own money, she can claim them back for reimbursement from the estate once funds become available (again, assuming there is enough money).

If the estate is quite small, as this one apparently is, there may be no need to apply for probate. But keep in mind that dollar amount is not the only factor. The type of asset will also matter. For example, there may be a mines and minerals title in the estate that is practically worthless at present, but you still need probate to transfer it because it's registered at the land titles office.

Assuming that in your case there is nothing unusual but there is, say, a bank account, a vehicle and personal belongings, your mother most likely will not have to apply for probate. The bank that holds the deceased's account does have the right to require your mother to apply for probate, but has the discretion not to insist on the requirement when the dollar amount is small.

Dollar amounts may not be everything, but they do matter. Banks who hold the only asset of the estate in the form of a small account may waive the requirement for probate because they realize that the court fees and lawyer's fees to obtain a probate could more or less wipe out the estate. The risk to themselves is smaller as well. If a bank releases a bank account without a probate document and it's later discovered that there is another will or another beneficiary, the bank could be on the hook for the amount they released. They will often accept that risk as long as your mother signs an indemnity form.

You will not need probate to transfer personal or household goods or a vehicle.

Keep in mind that sometimes there are reasons to probate a will that have nothing to do with dollar amounts, such as questions about the validity of the will, the need to obtain tax information, or claims by third parties.

All the right heirs

This post from Toronto Estate Law blog summarizes a report that talks about the issues involved in determining who are the correct beneficiaries of an estate. It's pretty interesting stuff, particularly when you look at the percentage of estates in which there appears to be an unknown beneficiary. Click here to read the article.

I'm not surprised to see that so many executors have trouble figuring out who is supposed to be a beneficiary and who is not. Blended families, adoptions, second marriages, estranged siblings... they all make it tough to know how to apply the law.

Which wills must be probated?

Not all wills need to be put through the probate process. The question is, which ones do and which ones don't? The answer is a bit complicated.

Each will must be evaluated in the context of the deceased and his or her assets. In other words, the decision about probate is usually made on a case by case basis after the testator dies.

It is possible to set up your affairs so that your estate won't have to go through probate, but be cautioned. It's not as simple as you might think. Don't try this without professional help. The number of people who have cobbled together bits and pieces of various probate-avoiding strategies on their own and ended up leaving endless mess and disputes is through the roof. They try to save a few dollars and end up costing their estate thousands in legal fees and taxes.

Whether or not your will has to go through probate will depend in large part on the type of assets (regardless of value) that you own, and how you own them.

Whether you've made beneficiary designations on the assets themselves will be important. For example, you might own a life insurance policy worth $100,000. If you have named a beneficiary, he or she will get the insurance money without need for probate. 

Another example is that you might own an RRSP or RRIF with $500,000 in it. If you have named an individual person as your beneficiary, he or she will get the money from the RRSP or RRIF without any need for probate. However, even this isn't carved in stone. Unless the person you name is your spouse or a handicapped child, your estate still has to pay the taxes on the RRSP or RRIF. You could end up being required to file for probate just to deal with taxes.

You don't need probate to deal with any asset is held as joint owners with a right of survivorship. That type of ownership means that the surviving person keeps the property without a need for probate. The most common assets of this type are real estate and bank accounts. This of course is where most people shoot themselves in the foot. They put their homes and other assets into joint names without giving thought to the consequences. Believe me when I say that it's common - very common - for children whose parents put their names jointly on bank accounts simply to clean out the account. Don't think it won't happen in your family; that's what all those other people thought too.

Don't put any assets in joint names with your child/children without sitting down with an estate planning specialist (not someone who does conveyancing or corporate or criminal law) and talking it through.

One of the main reasons probate may be required is that institutions may have internal requirements. For example, the land titles registry in your province is not going to transfer real estate (unless jointly owned as discussed above) without a grant of probate. Neither are banks, insurance companies or investment houses which hold large sums of money.

This requirement arises because a grant of probate is an order from the superior court in each province or territory that confirms that the will is valid, the executor appointment is valid, and that everyone who follows it properly is indemnified for his or her actions. For example, if a bank pays out $350,000 to the beneficiary named in a will, and has a grant of probate to rely on, someone coming out of the woodwork later on can't claim that the bank paid it to the wrong person.

Another reason that an executor might choose to apply for probate is that the family members are arguing about what to do about the estate. There might even be a question from family members, banks, the deceased's business partners, etc, about whether the will is properly valid. The executor may wish to protect himself or herself from blame and possible liability by having the court confirm the will and the distribution.

The general attitude that I encounter from customers and the general public is that probate must always be avoided at all costs. I couldn't disagree more! There are significantly more estate disasters out there because of people trying to avoid probate than there are for almost any other reason.

How to get started with probate

You're the executor. You're pretty sure that you're supposed to be probating the deceased's will. If you're like many people, you may find this project complex and maybe even overwhelming. Do you know where to start?

It's beyond the scope of a blog post to describe to you each and every step in the probate process, but in this post I'd like to point out some of the first steps you should take in order to get going with your court application for probate.

1.  Make sure that you have the original will, not a photocopy. It is always the most recent will that is probated, so check the dates if there is more than one.

2.  Get an original Funeral Director's Statement of Death and a government-issued Death Certificate.

3.  Decide whether you're going to do this probate application yourself, or whether you're going to hire a professional to help you. If you're hiring help, find a specialist. That can be either a trust company or a lawyer who specializes in wills and estates. Be realistic - if there's a dispute brewing, don't try to do this on your own.

4.  Spend a few hours in the deceased's home looking through his desk, filing cabinet etc. Look for (and keep) legal and financial documents including bank statements, investment statements, bank books, title deeds, child support orders, shareholders' agreements, vehicle pink slips, bills of sale, mortgage statements, share certificates, Canada Savings Bonds, pension statements, tax slips, tax returns from previous years, pay stubs, account numbers, insurance policies, contracts, etc. From these papers, you should be able to put together a basic picture of what you're dealing with in terms of assets and liabilities. You should also have a better idea of whether probate is even necessary.

5.  Make a list of everyone in the deceased's immediate family, with their addresses and birth dates. If there is anyone named as a beneficiary in the will who is not already on your list, add them.

6. If you are hiring a professional, take all of this material you've gathered to them.

7.  If you're doing the probate yourself, get a kit if possible. Links on this site will take you  to Ontario and BC probate kits, and soon the upcoming Alberta probate kit. Where no kits are available, get the forms from the Queen's Printer for your province or territory.

8.  Start with the inventory. I suggest this because you will have to make a lot of phone calls, send a lot of emails and visit a lot of offices to get the information you need. It's the most time-consuming and complex of the documents.

From there, you'll complete the forms you need and submit them to the court with the proper fee. This begins the probate process. While these instructions may seem very simple, any DIY executor knows that they are not. But now at least you know where to start.

Do I attach a list of specific gifts to the application for probate?

Although most assets are given away in a Will, many people choose to make (in addition to the Will) a list of specific personal or household items that they want to give to certain people.  For example, a woman might wish to leave her wedding ring to her daughter.

A list like that is a separate document from the Will. They are usually handwritten by the testator. I was recently asked whether the executor must include the list along with the Will when the executor is applying for probate. The answer can be either "yes" or "no", depending on the facts.

The executor DOES have to include the list (which is legally called a Memorandum of Personal Effects) if:

•  the testator made and signed the list before he/she signed the Will, and
•  the Will specifically refers to the list by saying that it is incorporated by reference.

The fact that the list is incorporated by reference means that it is included as part of the Will even though it was done before the Will document. Because it's now legally considered part of the Will, the executor has to include it when he or she probates the Will. 

Many lists of specific gifts are NOT incorporated by reference. If you make your list after you make your Will, it is not incorporated by reference. If the Will doesn't refer to the list, it isn't incorporated by reference. The non-incorporated list is very popular because it is so flexible; the testator can change the contents of the list as many times as he or she wishes without having to change the Will. In these cases, if the Will says anything about a list or Memorandum, it probably says something like "I may make a Memorandum giving specific items to certain people."

If an executor were to apply for a Grant of Probate on an estate that had a Memorandum that was NOT incorporated by reference, he or she likely wouldn't be required to include the list in the application, but should probably do so anyway, barring unusual circumstances. It's best to give the judge and the residuary beneficiaries the whole picture of the estate. If the Will says that the testator "may make a Memorandum" but one hasn't been found, include a sentence in your application for probate that states that you searched for a list but didn't find one.

This post isn't intended to be a recommendation of any kind about which type of list you should make, if any. There are plenty of reasons to use one or the other. I'll leave that for another day. Today's post is intended only to give executors some ideas about how they might deal with a list/Memorandum during the probate application.

Frustrating quirk in Alberta probate application

I received a reader question that was posted on one of the threads but that I'd like to share with you. Reader... I understand your frustration!

"I have embarked on the road to DIY probate using the materials included in the Alberta Surrogate Court kit. My first application was returned, due in part to a couple of oversights on my part, but also for reasons not explained anywhere that I could find, which I found incredibly frustrating.
As both inheritor and executor I did not realize that not only did I have to fill out forms NC 19 and 20 for myself to notify myself that I am a beneficiary, I also had to write and sign an acknowledgement that I had received those forms. I was not given the proper wording for the acknowledgement and am now worried that if I don't do it correctly my next submission will also be returned. Since the application and pickup of materials must be done in person it gets to be time consuming and frustrating. I think it is really pitiful that the province provides a kit that is supposed to let the average Joe file for grant of probate, but does not give us the tools to do so. I hope your book will cover this. I have appreciated reading your website which is easy to navigate and very well written. "

In my book, I specifically addressed the issue of serving notice on yourself, which is one of those quirky little details that makes people crazy. The correct procedure is to prepare the NC19 and 20 notices (which by the way can sometimes be combined into one form), add the acknowledgement on the bottom, sign them, and include the originals in the application for probate. Notices served on other people are included in the affidavit of service but this special procedure is intended to avoid you having to serve documents on yourself.

The wording for the application is:
"I hereby acknowledge receipt of notice of the application for probate, including a full copy of the application, in the estate of ____, deceased."

If you've had your application for probate bounced back to you, insert the NC19/20 (with signed, dated acknowledgement on the bottom) into your original application, and re-submit it.

I think the kit provided by the province is intended only to be a compendium of forms, not necessarily a kit with any advice. This is one of the reasons I decided to do a kit for Alberta probate.The forms are not a lot of good without any instructions.

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.

Progress report on Alberta Probate Kit

I get a number of emails asking when the Alberta Probate and Administration Kit will be available, so I thought I'd give a progress report. I've finished writing it (yay!). It's at the publishing company, being edited as we speak. We are still on target for a release of the kit in spring 2011. I'll let you know a more exact date as the information becomes available.

Writing this blog has actually been really helpful in putting that kit together. Seeing your questions and comments and keeping track of which posts seem to be of the most interest to you helped me keep in mind what people want to know. The kit has step-by-step instructions for (among other things):

• applying for probate
• applying for administration
• figuring out who gets what when there is no will
• how and where to file documents
• how and when to serve notices 
• filling in the forms needed
• when to file tax returns
• dealing with joint property that isn't in the estate
• transmitting land to the estate
• transmitting and transferring stocks and shares
• keeping executor's records
• preparing financial records for final reporting
• getting releases from beneficiaries
• knowing when you need help from a lawyer

 When it's on its way to the stores, you'll be the first to know.

Executor dealing with beneficiary name change

Sometimes it's the little things that cause huge irritation, especially when those little things prevent you from getting on with important paperwork. One of those little things that bother executors who are trying to put together an application for probate is the matter of the names of beneficiaries.

Sometimes a woman in a Will is described by her maiden name, but by the time the Will is probated, she has married. Or sometimes it's the other way around and the beneficiary has divorced or remarried. Some hyphenate their names. What does an executor do when the Will calls someone by a name that no longer applies?

The answer is to use both and to link the two together. When preparing estate documents such as the application for probate, the executor would describe the person by the name they currently use, then add "in the Will called..." and add the name the Will used. For example, if Jesse Smith got married after her mother made a Will, she would now be known as Jesse Morgan, her married name. The executor would describe Jesse in the documentation as "Jesse Morgan, in the Will called Jesse Smith".

If the executor simply used the name "Jesse Morgan" without linking this name to the named beneficiary "Jesse Smith", it may look as if the executor made an error.