ESTATE DILEMMAS
BY KEVIN WARK
Probate Basics The purpose and benefits of probate planning
W
hen discussing estate planning with clients, the terms “probate planning” and “will planning” are often used interchangeably. Indeed, there are significant linkages between the two. But ideally, and with your guidance, probate planning should take place before a client sits down with a lawyer to draft a will. This column outlines the potential benefits of probate planning and how it ties into will planning. A future column will discuss the pros and cons of taking steps while alive to arrange for the transfer of assets outside a person’s estate.
WHAT IS THE PURPOSE OF PROBATE PLANNING? Probate planning identifies those assets that either need to be, or should be, distributed to beneficiaries through a will versus those assets that will be transferred outside the deceased’s estate. This is critical to the proper drafting of the client’s will and should also lead to a review of strategies that will effectively permit the transfer of assets outside the client’s estate. Advisors can play an important role in probate planning by helping clients develop an inventory of their assets and decide how they would like those assets to be distributed on death. Determining the best way to transfer assets not only simplifies the will planning process but can provide a significant financial payback for estate beneficiaries.
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WHAT ARE THE BENEFITS OF PROBATE PLANNING? One of the main reasons to engage in probate planning is to develop an inventory of assets. As part of this process, it is important to: • Specify where assets are physically located and who may be involved in managing or administering them • Understand the nature of the client’s ownership interests — such as joint
ownership, corporate ownership, or a beneficial interest in a trust • Be aware of any restrictions that may apply to the transfer of the property, such as a mandatory buy-sell agreement between shareholders or a mortgage on the family cottage All of this information is extremely helpful to a lawyer in drafting the client’s will and assists with other planning. Clients who reside in British Columbia, Ontario, or Nova Scotia often undertake probate planning to avoid estate taxes/probate fees, which can be as much as 1.5% of the value of estate assets. For example, a client who lives in Ontario and can arrange for the transfer of $1 million of assets outside the estate will save about $15,000. In all provinces and territories, the executor of an estate (whether a family member or not) is generally entitled to claim fees for work done to administer the estate. These fees can be as much as 5% of the value of the estate. Thus, even in provinces with no or low probate fees, moving assets outside the estate can result in cost savings for the estate and beneficiaries. Note also that assets distributed under the deceased’s will are subject to claims by the deceased’s creditors, family law claims, lawsuits by unhappy family members, and/or tax claims by the Canada Revenue Agency. Greater protection from
these claims may be available by arranging while alive for assets to be gifted to beneficiaries or entering into other asset transfer arrangements outside the will. Furthermore, many clients, wealthy or otherwise, wish to keep private the nature of their assets and the identity of beneficiaries under their estates. In particular, they often want to avoid media publicity related to the distribution terms of their estates. However, once a will is probated (a formal process that requires filing the original will and a description of estate assets), this information becomes part of the public domain and searchable by others. Clients may, therefore, be attracted to planning strategies that achieve the same estate goals while avoiding prying eyes. Finally, the time it may take to obtain probate approval for a will can be problematic. For example, in large urban areas, probate may not be granted for several months or even longer. Further delays can occur when there is a legal challenge to the validity of the will. The inability of the named executor to deal with estate assets before probate is finalized can have serious repercussions, particularly when the deceased holds property such as shares in a business or the beneficiaries are in dire financial need. Once again, strategies that allow for the transfer, management, and control of assets outside the estate can be very beneficial to those who have an interest in the deceased’s estate.
STAY TUNED FOR STRATEGIES Now that we’ve covered off the basics of probate planning, stay tuned for the next column on common probate planning strategies. KEVIN WARK is managing partner of Integrated Estate Solutions and a tax advisor to CALU. He is the author of several tax/estate planning books entitled “The Essential Canadian Guides” that are available through Amazon.ca and Kindle. DECEMBER 2023 FORUM 27
