How to avoid probate fees?
Nobody likes to pay more taxes than they must. Nobody likes spending money on lawyers and the courts, either. Avoiding the probate process and probate fees is one reason to do your estate planning. Just don’t make it the driving reason.
Doing estate planning solely to avoid the probate process and probate fees is like choosing the place you retire based solely on the weather. Great weather, like avoiding probate taxes, is wonderful. But in choosing your retirement home, you also want a safe place, clean water, good food, and access to medical care. That’s why nobody retires in Burma. If avoiding probate taxes means more income taxes, more problems settling your estate, and more bad blood among your children, then the cost of avoiding probate fees is not worth the trouble!
How to avoid probate fees?
The only way to ensure that your estate will completely avoid probate taxes is to have nothing in your estate when you die. Other strategies involve reducing your estate assets while you are still living. Here are four ways you can avoid the probate process and minimize probate fees:
1. Name a beneficiary
Make sure you name a beneficiary on items such as Life Insurance, RRSPs, RRIFs, Tax-Free Savings Accounts (TFSAs), and other Non-Registered assets at Insurance Companies. Naming a beneficiary ensures these monies flow outside your estate, avoiding probate.
Related Article: Designating Beneficiaries for RRSPs and RRIFs
2. Give money away while you’re still living
For retirees with significant amounts of money, give some of it away. By doing so it is out of your hands and into the hands of a person who will be able to put that money to good use. Pay down a mortgage, pay off debt etc. Once it the asset is out of your hands, when you pass away it is not part of your estate.
3. Joint ownership
Transfer your accounts to joint owners with the right of survivorship. Joint Ownership can be a way to avoid probate fees but be careful; there can be some drawbacks. There is Joint Ownership with the Right of Survivorship and Joint Tenants in Common.Joint Ownership with a spouse on bank accounts, the home, and non-registered accounts is a good idea. Joint Ownership of children can have a negative impact before or after death, depending on the family dynamics. Make sure you do your research.
4. Establish a trust
Trusts can also help in minimizing your estate. Testamentary Trusts are used at the time of death and can be a great tool for estate planning. Your trust will be managed by an estate trustee, who you will name in your will.
Each of these methods can be appropriate at various times, but each also has potential drawbacks, therefore these methods must be used carefully. Remember, that avoiding probate is only one goal of your estate planning. Don’t place too much emphasis on this issue alone.
Comments
Hi Jim, Probably beyond the scope of this article but another great way to avoid probate is not to have a will at all!
Now before people go jumping all over me I think it is imperative that everyone have a will for the just in case event. But if you have time to plan for your eventual death then using a trust can have the majority of your assets pass outside your estate.
I will you an actual case to explain. An 84 year old widow was seeing her health decline through more frequent trips to the hospital. Her daughter and she decided it was time to sell her home and move into a retirement home where she could be better taken care of.
The bulk of her assets (now liquid) were transferred into a trust where she was the income beneficiary and the capital beneficiaries were spelled out in the trust indenture the same as they were in her will. The transfer took place over two tax years to split the deemed disposition of the assets transferred into the trust.
Upon her death the trustee was quickly and easily able to payout the assets to the capital beneficiaries and the majority of the woman’s assets avoided probate!
Good list. I would add drafting two wills: one for assets subject to probate and a second for assets not subject to probate. A good lawyer would be able to advise when it is advisable to have 2 wills and what should go into each.
You mentioned that trying to avoid probate could have pitfalls. I’d appreciate if you could explain the pitfalls of using insurance products for this purpose.
I look forward to your response. Thanks.
Can one appoint your spouse as successor annuitant instead of beneficiary on an RRSP?
Hi Jim, In one of your articles you stated “if a beneficiary is designated in the RRIF contract, the RRIF value will not be included in the calculation of probate fees on death.” Are all RIFF’s with a designated beneficiary, such as a daughter, exempt from the probate fee calculation (Estate Administration Tax in Ontario)? Or more to the point, are RIFF’s held by a financial institution, such as a bank, exempt from probate fees similar RIFF’s held by an insurance company? I’ve seen conflicting information. Thank you in advance for your reply. Sincerely, Rob
Does the value of the estate assets determine whether or not probate is necessary in Ontario ?
Is it possible for an executor who is also a power of attorney to transfer money before someone passes away, to avoid probate and hide assets ?
I wondered if these could be possible reasons for the executor not probating a family member’s will but is still able to commence the closing of her estate. She was divorced and lived independently at the time of her death.
Jen