Profits and perils of avoiding probate
What is probate? In common usage, probate refers both to the process of applying to a court to have a Will confirmed as valid, and the charge levied by the court for having done so. Technically, the process is an “application for certificate of appointment of estate trustee with a will” and the charge is the “estate administration tax”, but in common usage both are still generally called “probate”.
Can you legally avoid probate? Yes! There are a number of strategies that can be used to escape probate.
Gift – Property that is given as a gift during your lifetime does not fall into your estate because you do not own it upon your death. The gift becomes the legal property of the person to whom you give it. In situations where a testator does not require continued legal control of the asset and where there is no doubt that this is the person who would receive that property upon death, this is the simplest strategy to use.
Joint ownership – Quite often spouses will hold their home in joint ownership with right of survivorship, meaning that the home passes to the surviving spouse upon the earlier death. Similar arrangements can be made with individuals other than a spouse, and the type of property need not be restricted to real estate. In fact, many financial assets such as bank accounts and other investments such as term deposits are held jointly with the intention that the account goes to the survivor (or survivors) at death.
Insurance beneficiary designation – Under a life insurance policy you can name a beneficiary who is to receive the death benefit proceeds directly, without the payment passing through the estate. In addition to probate avoidance, any creditors of your estate will be bypassed. This also includes GICs, term deposits and segregated funds invested with a life insurance company.
RRSP/RRIF beneficiary designation – As with insurance designations, probate may be avoided for named beneficiaries under RRSPs, RRIFs and other similarly registered investment plans, though protection against estate creditors may not be available.
Estate freeze – An advanced planning technique such as an estate freeze may be used for those with appreciating capital assets, particularly those with substantial real estate holdings, long-held securities portfolios or ownership interests in small businesses. An estate freeze usually is affected using trusts and/or corporations.