Probate Strategies for High-Net-Worth Canadians

Probate Strategies for High-Net-Worth Canadians                                                               

Your life is ever-evolving and multi-faceted, and so are your goals. Wiegers Financial & Benefits offers a holistic approach to financial planning to ensure that no matter how your circumstances and goals change, we cover all the bases. In our latest blog post, we speak to what you might consider doing in terms of probate strategies if you are a high-net-worth individual in Canada.

What is probate?

For many tax-paying Canadians, probate is a four-letter word. Put simply, it is the judicial process of a court determining that a will is the last will and testament of an individual who died. Once a will is probated, the executor can access the deceased person’s bank accounts and other assets to transfer to the persons’ beneficiaries.

Is probate expensive?

Probate is important but it can be very costly, particularly when it comes to the estates of high-net-worth Canadians. In Saskatchewan, for example, the probate fee is $7 on every $1,000 of value passing through the estate, plus court fees and, where appropriate, legal and land titles fees. It’s typically a valuable exercise to speak with a lawyer, tax professional and/or e advisor to determine how to most effectively probate costs.

Are all assets included in probate?

The answer to this question is, it depends. Real estate always goes through probate unless it is transferred through the right of survivorship. And, if a couple owns all assets jointly (real estate or unregistered accounts) with no other beneficiaries other than the surviving spouse, the estate will be transferred without probate. When the surviving spouse also dies, then the estate will pass through the probate process if the assets are in the person’s name.

Probate does not include:

• Assets held in joint names with right of survivorship
• Life insurance policies payable to a named beneficiary
• RRSPs, RRIFs, TFSAs, and pensions payable to a named beneficiary

Shares of a private company might escape probate If they are the only asset of an estate being passed down (depending on the province in which you live).

Strategies to reduce or avoid probate

Put assets in a Trust

A popular strategy for reducing probate among high-net-worth Canadians is to put funds and property into either an Alter Ego Trust (in the case of an individual) or a Joint Partner Trust (in the case of a couple). This ensures that assets won’t go through a will and won’t be subject to probate fees. Further, no taxes are triggered when transferring assets into an Alter Ego or a Joint Partner Trust unlike some other types of Trusts. 

Alter Ego and Joint Partner Trusts become available once an individual turns 65. After the Trust is established, only the individual or couple can benefit from its income and access its capital during their lifetimes. Upon their passing, capital gains taxes are paid on the transferred assets but the Trust functions like a will by ensuring that the named beneficiaries receive the assets while bypassing probate.

While Trusts can be appealing, individuals must understand that once funds are placed into the Trust, they no longer legally own the money, which can introduce complexities when transferring funds to family members. Setting up and managing a Trust involves costs and potential complications but Trusts offer valuable tax advantages, bypass probate, and can help families navigate intricate estate planning issues.

Give away your assets

There is no tax on gifts in Canada. And nothing goes through your will that you don’t own. A surefire way to avoid probate is to donate to a charity or cause that matters to you. Any assets you give away will be probate-free AND it gives you an opportunity to serve others to another level. Be careful, though, as the future is unpredictable. You don’t want to give away so many of your assets that you’re financially unprepared to cope with unexpected expenses, including healthcare costs.

Keep in mind that none of this planning would make any sense for you unless you’ve had a full financial plan prepared for you to see what your financial future looks like. And for high-net-worth Canadians in particular, it’s important to work with a professional to ensure a smooth generational wealth transfer. Please speak with your financial advisor to ensure you’re on the right track now and moving forward to ensure that your financial needs and wants are met, including looking after the people and causes you care most about.

 

Clifford A. Wiegers, CFP, TEP, CH.F.C., CLU, B.Comm.

Insurance Representative, Wiegers Financial and Insurance Planning Services Ltd.

Financial Planner, Manulife Wealth Inc.