Aug 03, 2022
Can An Executor Of A Will Decide Who Gets What?
Executors have a lot of power and responsibility. But there are certain things that executors cannot do.
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Going through probate in order to settle an estate when someone dies can be a frustrating, long, and costly process. Usually, an estate will have to go through probate court if it’s particularly complex and/or has many assets, in which case the probate court validates the will, officially names the appointed executor and authorizes them to deal with banks, insurance companies, administrators, and any outstanding tax issues.
However, this whole process costs money: You’ll have to pay a so-called estate administration tax, also known as a probate fee, in order to go through probate. The required fees are paid by the estate, which means that, depending on the size of the estate, beneficiaries might see a significant chunk of their inheritance get swallowed up. In Ontario, probate fees are calculated on the value of the estate: For estates valued over $50,000, the fee will be calculated as $15 for every $1,000. So if you have an estate valued at $230,000, you would be facing $2,700 in fees (estate values are rounded up to the nearest thousand).
Therefore it’s no surprise that people are asking how they can avoid probate fees. Our estate professionals put together this list of the 5 best estate planning tactics you can use to avoid probate in Ontario and give your loved ones more of your legacy.
Let’s take a look at the best ways to avoid probate. Whether it means setting up a trust or creating a joint right of survivorship, there are a number of ways to reduce your probate fees in Ontario.
The best way to avoid probate in Ontario is to simplify your estate as much as possible before death. This can include giving away money, property, vehicles, investments, and more to family members. In Ontario, the magic number to avoid probate fees is 50,000$. Before that threshold is reached, no probate fees are charged.
The goal of proper estate planning is to maximize the wealth being passed on to your beneficiaries. Rather than forking out 15$ on every 1000$ after 50,000$, there are ways to simplify your estate before going to probate court. Probate court often comes with unforeseen costs and delays that will ultimately come out of the estate itself.
Gifting is one of the most effective ways around probate fees as these assets would not be considered part of your estate anymore. Probate courts, however, will charge taxes on traditional inheritances and treat it as income.
Another effective way to reduce your probate fees in Ontario, or avoid this process altogether, is to name beneficiaries on all your life insurance, pension plans, or registered savings accounts, including TFSAs and RRSPs.
Rather than going through the probate process with all your other assets, these funds will typically be transferred directly to your beneficiary. This is especially important when keeping in mind the 50,000$ threshold and offers you the ability to significantly reduce the final probate bill.
Alternatively, you can always transform all your financial accounts into joint accounts with your spouse before death. This would also help bypass the probate process, excluding these assets from the calculation of the estate in probate court. Naming beneficiaries, however, is usually the best way to go, ensuring a smooth transfer of assets from the deceased to the appropriate parties.
Setting up a trust is a strategic way to avoid probate in Ontario and save your loved ones significant time and money. A trust allows you to title assets, which will then be transferred to their respective trustees. The trust itself will take care of the distribution of your assets following your death, providing complete transparency to all relevant beneficiaries.
In this instance, the trust technically owns the property it is set to distribute and it is not considered part of your estate. As a result, no estate means no probate process. Setting up a trust not only helps avoid the costs of probate, but is also one of the most effective, timely, and private ways of distributing your assets in Ontario.
Assets that are held jointly with the right of survivorship are not typically included in the probate process. Instead, they are passed on directly to the joint owner, triggering no additional probate taxes.
Naming joint owners, however, could yet have tax implications on the inheritors, including capital gains property transfer tax. Estate accountants should be consulted before undertaking this step, providing you with a comprehensive picture of tax your loved ones should expect to pay.
Naming a joint owner when he or she is not the only beneficiary could also lead to family disputes between heirs. Complete transparency with beneficiaries is recommended to avoid this and keep their expectations in check throughout the estate settlement process.
Seeking professional help from estate administrators is arguably your best bet at avoiding probate in Ontario. Our dedicated team of estate professionals will walk you through the entire process, and ensure the transfer of assets goes smoothly. Avoiding probate not only saves your family time and money, but is also a great way to preserve your loved ones’ privacy.
While there are certain aspects you can take care of yourself, including gifting assets, and updating your list of beneficiaries, there are elements of the probate process that will require estate planning, tax, and probate law experts. Clear Estate can help you plan and settle your estate as well as apply for probate at a third of the price compared to estate lawyers and legal professionals, offering your family transparency, empathy, and expert advice along the way.