What is probate?
Probate is the legal process of the courts validating a will, verifying that it is the person’s last will, and confirming who the executor and trustee is, thus giving them the power to follow any instructions in the will. In the absence of a will, the probate process appoints an estate administrator or estate trustee (most often in response to a family member’s application to be the estate administrator or estate trustee).
If there is a will, probate is not strictly required by law in all cases, especially if the estate is small and does not include assets that require probate, if there is a surviving spouse and if all parties are satisfied with the way assets are transferred. But probate is often applied for anyway to ensure that the will and the executor’s authority are valid. The process takes several weeks.
This validation process protects the executor from claims that they were acting improperly or without authority, and it protects third parties such as financial institutions from claims that they released assets improperly.
How much is probate tax?
Probate is a provincial matter, so legislation and fees (properly called estate administration tax) vary among provinces. Fees are most often based on the overall value of the estate. Probate fees apply regardless of whether or not there is a will.
As an example, Ontario’s probate fees are as follows (2017): 0.5% of the first $50,000 and 1.5% of the estate’s value in excess of $50,000. So if the estate is worth a total of $2 million, the fee will be $29,500.
How does the process work?
Whether or not there is a will, confirmation of an executor is required to administer the estate. When someone dies, most often the executor applies for probate. But anyone with an interest in the estate can request it, and their request may come from their belief that the will, or the appointment of the executor, is not valid for some reason. Unless the executor has a probate certificate (Certificate of Appointment of Estate Trustee) issued by the court, bank accounts and other assets may remain frozen for some time and heirs may not receive what they’re entitled to in a timely manner. Financial institutions most often require that an estate go through probate before they release assets if accounts hold more than about $10,000. Insurance companies generally require probate if life insurance proceeds are to be paid to the estate rather than to a named beneficiary. Transfer or sale of real estate (other than to a co-owner with right of survivorship) or shares of public companies also means probate is required.
It is possible for some portions of an estate to go through probate and other portions not go through the process. Assets that do not form part of the estate and are transferred directly to beneficiaries (such as jointly owned property, joint bank accounts or insurance with a named beneficiary) do not need to go through probate.
Using Ontario as an example, this is generally how probate works. The executor must determine the value of the estate. They then apply to the provincial government to be the estate trustee and pay the probate fee. They then must file an Estate Information Return within three months of receiving the certificate. This information return gives details of how the value of the estate was determined. It must include information about assets including bank accounts, non-registered and registered investments (except registered investments that pass directly to a named beneficiary), real estate (including property owned in common, without right of survivorship), vehicles, insurance policies payable to the estate, business interests, and personal possessions.
Careful planning can reduce the cost of probate. The use of two wills can mean some assets won’t need to go through probate. Another approach is to give gifts of some assets before death, because once they are given away they are no longer considered part of the estate (talk to your accountant first, because giving some assets will trigger tax consequences that could be more significant than the probate fees saved). Joint tenancy with rights of survival is effective for certain assets, and naming beneficiaries for RRSPs, RRIFs and insurance policies means they will not flow through the estate. Meet with your estate planning advisor to discuss these strategies.