How to avoid probate in Ontario

How to avoid probate in Ontario

In order to understand how to avoid probate in Ontario, we need to first and foremost understand what it is and when it’s required.

Once you understand that, then knowing how to avoid probate in Ontario isn’t all that difficult, especially when you know which steps to take. This article explains in detail how you can do just that

How to avoid probate in Ontario

What is Probate in Ontario?

Probate is a legal process that is managed by the court, to provide an individual with the authority to act as the executor of a deceased’s estate. An executor can be named in the Will and if there is no Will then an executor can be appointed by the court.

Upon completion of the probate process, the court will issue a Certificate Appointment of Estate Trustee to the executor. The person appointed as an Estate Trustee has the legal authority to deal with the deceased’s estate.

Supreme Court of Canada defined the purpose of probate in the case of Re Eurig Estate [1998] S.C.J. No. 72 

” The purposes of probate is to certifiy that a will and codicils have been duly proved and registered in the court and that the administration of the property of the deceased has been committed by the court to the person named in the will as executor”

So, to put it simply, probate is a legal process which sees the collection and distribution of a deceased individuals assets after his/her demise. Since court costs, lawyer fees, probate taxes, probate fees, and any other associated charges can rack up easily and prove to be very expensive, most people plan their estate in their lifetime in order to avoid probate costs and save time.

Therefore, when we talk about how to avoid probate in Ontario, one of the key things involved is seeing to it that specific assets are not declared as part of the probate estate.

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How do I know if probate is needed?

A short answer is “probate is required in nearly all estates in Ontario”. Only in some rare cases, probate can be waived off or avoided through pre-death planning. 

In essence, two types of assets do not require probate. Joint assets with right of survivorship & assets with designated beneficiaries. Therefore, it is the nature of assets that would determine if probate is needed or not? 

In some cases, probate would be required because of the selection of executor as there may be a dispute about who the executor should be or due to some of the beneficiaries being minors or those living with a disability, and hence, not being able to consent on their own.

If the estate is simply passing from “the first partner to die to their spouse”, then probate may not be needed because there is no estate to probate. 

This is particularly the case when a house is jointly owned by both individuals under a ‘joint tenancy’ having a right of survivorship – and the surviving spouse has been named as the beneficiary of a life insurance policy, pension, TFSA (Tax-Free Savings Accounts) or PRSP (Registered Retirement Savings Plans).

Again, under these circumstances, there is no estate that requires probate.

Now, if the estate in question is being passed from one generation to the next (such as parent-children), then probate is typically needed. Still, some individuals try to avoid probate by utilizing beneficiary designations.

While this is entirely possible and may be an effective strategy when it comes to ‘how to avoid probate in Ontario’, it can lead to a significant risk of estate disputes.

This practice is generally not recommended and only feasible where all of the estates will be passing to just one adult child.

Another scenario to consider is when the estate includes any property which does not automatically vest in someone, such as the deceased’s spouse, and in this case, probate will most likely be required.

How to avoid probate in Ontario

9 Tips you must know

Tip 1: Name the key beneficiaries on all your life insurance policies

Once you name beneficiaries on all of your life insurance policies then life insurance will be paid directly to the beneficiaries, which means the funds will never be a part of the probate estate. This, in turn, means that they will not be subject to any probate fees or taxes. It’s always a good idea to name a secondary beneficiary as well, in case the primary beneficiary passes away before you.

As a word of warning, we are increasingly noticing that insurance companies are building a practice to demand probate of a Will to release proceeds to an estate despite the named beneficiary. This practice is questionable and in the case of Rozon Estate v. Transamerica Life Insurance Co. of Canada, [1999] O.J. No. 4538 the court held that “There was nothing in the Insurance Act that should lead the Court to interpret the words sufficient evidence in section 203 to mean necessarily a probated will.” 

In other words, the Insurance Act only requires sufficient evidence of death to pay the proceeds to the beneficiaries but sufficient evidence did not automatically mean a will has to be probated.

Tip 2: Hold assets in cash only or bearer certificates

When assets like stock are held in cash/bearer certificates, they can be excluded from the probate estate. This automatically reduces any associated taxes and fees. A bearer certificate is a kind of financial instrument (check payable via ‘cash’, for example) that can be redeemed by the individual or party possessing it.

Again as a word of warning, many stock transfer agents insist upon receiving an indemnity bond to transfer corporate shares without probate. It would be wise to check with your broker before you make this part of your estate plan.

Tip 3: Designated beneficiary Assets Accounts

All assets held in a designated beneficiary account do not require to be probated. Most common designated beneficiary assets accounts are life insurance, registered saving plans such as RRSPs, RRIFs, TFSAs,  and employer pension plan. They are also referred as ‘Transfer on Death’ or ‘Pay on Death’ assets.

Since a ‘Transfer on Death’ or ‘Pay on Death’ is not applicable for non-registered investment accounts, you must have a registered account such as a TFSA, RRSP or RRIF account where you have named beneficiaries. However, you can avoid probate on non-registered accounts through joint ownership.

A ‘Transfer on Death’ or ‘Pay on Death’ designation on the joint ownership account lets you determine who the property will be transferred to or to whom the amount will be paid to, according to what you’ve put down in your will.

Since this will be transferred directly to the chosen party, no probate taxes will be levied.

In order to designate a ‘Transfer on Death’ or ‘Pay on Death’ to a beneficiary, you must contact the investment firm or bank where the account was originally opened.

The general procedure may vary from bank to bank or firm to firm, but in most cases, you’re required to fill out and return a form, and that’s it.

The institution prior to payment may insist on a copy of the last will, and some form of proof to verify  that there are no subsequent Will or change of beneficiaries. 

Tip 4: Joint Ownership

Assets possessed jointly with rights of survivorship in place pass directly to the living joint owner, which means they will never be subject to probate.

However, it’s a good idea to consider some key aspects before you name a joint owner for any of your assets, because it’s not always the best thing to do in all circumstances:

  • A joint owner’s name in your assets’ title, where there are multiple beneficiaries named against the said assets, can cause conflict and discontentment between the various heirs or beneficiaries. In fact, the other beneficiaries may even be led to believe that the joint owner was merely holding the property on behalf of all the beneficiaries involved. As such, this can lead to a dispute, where the beneficiaries might argue about who the rightful heir to the property should be.
  • When the time comes to sell or mortgage the property, you must have the full cooperation of the joint owner. And, once you have chosen a joint owner, he/she must consent to the property’s sale or any mortgage you take against it.
  • There’s no telling when a joint owner might ‘clean out’ your accounts or perhaps encumber your property – and you may not even know it before it’s too late. The thing is, once you allow a party to own any kind of interest in your property, that individual or group may take out loans on it, or in case of an investment account or bank, empty it entirely. And you can bet they will do this without your consent or knowledge.
  • When you give a joint owner a share in the joint property, this share extends to his/her creditors as well. So, any claims the joint owner’s creditors, including his/her spouse, make can be honoured, leaving you empty-handed.
  • When you name joint owners of a specific property, you may have to deal with tax consequences, like capital gains property transfer tax. Therefore, it’s best to consult a tax lawyer in Ontario before taking any step which may change your tax obligations.

Tip 5: Gifts

If you gift your property to a close family friend, or anyone, really, it will effectively reduce the estate’s value at the time of your passing. This means that the amount of taxes or any fees due will also be reduced. However, certain legal obligations may apply when giving gifts during your lifetime that are given away specifically to reduce probate taxes. Consider the following:

  • You need to give up complete control of the gift when giving it to a chosen ‘giftee’. Let’s say you’ve given someone antique furniture or a priceless art collection, you must fully discontinue possession of the said item. Let’s put it another way: if you give away a bank account as a gift, then you must add their name as the account title and do away with yours completely.
  • The giftee may have to deal with tax consequences. To give you an example: if the FMV or fair market value of the gift is higher than its actual cost, the accrued gain may be subject to tax as a capital gain.
  • When giving real estate away as a gift, property tax transfer and other fees may apply. Therefore, it is in your best interest that you consult a probate or tax lawyer before transferring property to another party or individual, even if it’s for the sake of giving it away as a gift. This ensures that your rights are fully covered from both a legal and financial standpoint.

Tip 6: Create a Trust Fund

By setting up a trust fund, you’re effectively attaching a title to your property, which will be held by a designated trustee for you. However, you can also appoint yourself as a trustee. After your demise, the trust will handle the distribution of the property and since they (the trust) are the sole owner, the property will never become a part of your probate estate, and therefore, won’t be subject to any probate taxes.

Tip 7: Transfer assets to Limited Company

As long as you have a payable debt which is not a mortgage, it will not be deducted from your assets at the time of your death when the value of the estate is being determined. Since the value of the estate will go up, a higher probate tax will be applicable.

Therefore, you must transfer the loan and the asset purchased along with it to a limited company, effectively reducing the estate’s gross value. In turn, this will cut down the probate tax payable.

Tip 8: Create two Wills

The use of dual Wills method to avoid probate in Ontario if not reduce probate tax and fees.

Any party holding certain kinds of assets can make two wills. The Primary Will deals with assets that are subject to probate while the Secondary Will deals with how the assets are to be distributed. This way, you can effectively cut down your probate. To understand what these asset classes are, speak to an experienced estate lawyer or probate lawyer.

For example, a huge addition of cash can put you in another tax bracket, and you may end up paying more income tax.

Tip 9: Consult Estate Lawyer

The above steps are all very effective when we talk about ‘how to avoid probate in Ontario’.

It is equally important to speak to a professional who is experienced in dealing with estate planning matters.  Consulting an estate lawyer and speaking to your tax consultant will go a long way to help you plan on how to avoid probate. 

In order to exercise better control over when a beneficiary is handed down the property, you should seriously consider creating a trust or a private limited company.

It’s also a good idea to sit down with your friends and family, and discuss how you’d like for your personal property to be distributed amongst the beneficiaries after your demise.

For instance, if you want a specific a friend or family member to have a certain item, and you’re not sure if your wishes will be faithfully acted upon, then it’s best to simply hand over the item during your lifetime.

Also, a word of caution: When you name a joint account holder on any account, the joint owner can take out all the cash at any time they wish or even cause a lien to be placed on that account – often a direct result of being sued where a judgement is handed down against them.

Therefore, you should play it safe by naming a Transfer on death instead, which will ensure that the property passes down to the rightful heir, without surrendering any interest in it until after your demise.

Just to quickly reiterate – it’s imperative that you work with a qualified estate lawyer or probate lawyer to understand your financial and legal rights as well as obligations, before you take any action whatsoever.

The Tips discussed in this article can be very effective in terms of ‘how to avoid probate in Ontario’, but it must be understood that outright avoiding probate may not be the best course of action for everyone.

Consulting an estate lawyer or a probate lawyer ensures that you’re taking the appropriate steps to avoid probate according to your specific circumstances, or whether you should even consider avoiding probate to begin with.

There’s no question about the fact that avoiding probate can save you plenty of time and money.

Some of the tips explained above may be easier than others – however, a simple miscalculation or misstep can cause many problems down the line.

This is precisely why people work with a Estate lwayer or probate lawyer in Ontario for expert estate planning as well as to avoid the hefty fees, filing demands and long delays which are often a part of how probate works in Ontario.

At the end of the day, we simply want to ensure that we pass down the desired assets, property, cash, bank account or prized items to our family and loved ones after our demise.

After an entire life of hard work and saving for retirement, the absolute last thing you want to deal with is the Canadian government demanding a large portion of your hard-earning livelihood in the shape of probate fees.

Shaikh Law Firm are based in Ontario, offering completely straightforward, transparent and unbiased advice on how to avoid probate in Ontario.

Our experienced and knowledgeable lawyers in Ontario will sit down with you to fully understand your situation, and then come up with strategies to help you reduce probate and eliminate it altogether, where possible.

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