Death, Taxes, and Probate Fees

They say nothing in life is certain except death and taxes. Although death is inevitable, there are ways to minimize the financial impact on your loved ones, particularly when it comes to probate fees—a type of levy charged on your estate after death. In this article, we'll break down what probate is, how it works, and the strategies you can use to minimize these fees, including utilizing Segregated Funds to protect your assets.

What is Probate?

Probate is the process of legally validating a will, which includes authenticating the will and confirming the Executor named in it through the provincial court system. Once the probate is complete, the Executor gains the legal authority to handle your assets as outlined in your will, ensuring your final wishes are carried out.

If you do not leave a will, the probate process becomes significantly more complicated. The courts will appoint an Executor, and provincial laws will dictate how your assets are distributed—which may not reflect your true intentions. This underlines the importance of having a legally valid will.

Probate fees, also known as probate taxes, are the levies paid to the Ministry of Finance based on the total value of all assets you own individually at the time of your death. Once the estate is probated, the Executor can begin distributing the assets in accordance with the terms of your will.

Which Assets Are Subject to Probate?

The following individually owned assets are typically subject to probate:

• Bank accounts
• Real estate
• Vehicles (e.g., cars, boats)
• Securities (e.g., stocks and bonds)
• Personal valuables (e.g., jewelry, art)
• Business interests

How Are Probate Fees Calculated?

Probate fees differ significantly depending on the province in which you reside and hold assets. Below are some examples of probate fees across different provinces:

• Alberta: Alberta's probate fees are relatively modest, currently capped at $525 for estates valued over $250,000.
• Ontario: Ontario has one of the highest probate rates, at 1.5% of the value of the estate.
• British Columbia (BC): BC has a tiered system. There are no probate fees on the first $25,000 of the estate. The portion between $25,000 and $50,000 is charged at $6 per $1,000, and the remainder is charged at $14 per $1,000. For a $1,000,000 estate, this totals $13,450.
• New Brunswick: New Brunswick's probate fees are lower, at 0.5% of the estate’s value.
• Manitoba: Manitoba eliminated probate fees as of November 6, 2020.
• Québec: Québec does not levy probate fees but requires non-notarized wills to be authenticated by the courts.

These differences make it important to understand the probate regulations of your specific province to develop an effective estate plan that minimizes fees.

How Can You Minimize Probate Fees?

Probate fees can significantly reduce the value of the estate left to your beneficiaries, but there are effective strategies to minimize them and keep more of your assets where they belong—with your loved ones.

1. Name Beneficiaries: One of the simplest ways to bypass probate is to name a beneficiary directly on registered assets like RRSPs, RRIFs, TFSAs, and insurance policies. These assets will pass outside of your estate, avoiding probate altogether.
2. Joint Ownership: Holding property or bank accounts in joint ownership with a spouse or adult child is another effective way to avoid probate. Upon your death, jointly owned assets transfer directly to the other owner.
3. Segregated Funds: Segregated Funds, which are insurance-based products, allow you to name a beneficiary directly, thereby avoiding probate fees entirely. Beyond cost savings, this strategy ensures quick access to funds for beneficiaries and preserves privacy, as probate proceedings are public records.
4. Gifting Assets During Your Lifetime: Consider gifting assets while you are still alive. This strategy can reduce the value of your estate, thereby decreasing probate fees. However, note that gifting assets may result in capital gains taxes if the gifted asset has appreciated in value.
5. Multiple Wills: If you own private company shares or specific personal assets, using multiple wills can help. One will can cover assets that are subject to probate, while another will manage assets that are not, which can reduce the overall probate fees paid.
6. Setting Up Trusts: Establishing certain types of trusts while you are alive can also minimize probate fees. Trusts can hold assets outside of your estate, allowing them to be passed directly to beneficiaries without the need for probate.

Conclusion: Be Proactive in Minimizing Probate Fees

Probate fees can be a significant burden on your estate, reducing the inheritance passed on to your loved ones. However, by planning ahead and taking proactive steps, you can minimize these fees. Whether it's through naming beneficiaries, holding assets jointly, setting up trusts, or using Segregated Funds to bypass probate altogether, there are multiple strategies available to protect your assets.

Next Steps

To make the most of your estate planning and minimize probate fees, consider consulting a professional advisor. At Garrett Agencies, we can help you explore the best strategies for tax and estate planning, ensuring that your estate value is maximized and your loved ones are taken care of. Reach out today to get personalized advice and take the first step toward securing your financial future.