A will speaks from the date of death. Typically, once an individual dies, the document is valid on the face of it, and the authority of an estate trustee spontaneously arises at that point in time. However, circumstances may exist in which a will needs to be validated before an estate trustee is able to act on the authority granted pursuant to it.
Probate refers to the court process of validating a will. The result is the granting of a Certificate of Appointment of an Estate Trustee with a Will (formerly referred to as Letters Probate), which formalizes the authority of an estate trustee to administer an estate pursuant to the terms of the relevant will.
The process of obtaining probate involves swearing an Affidavit to the verification of estate assets. Should probate be required, this is an important step in the administration of an estate, as the estate trustee can be audited for this amount or held liable for assets that are omitted.
Probate brings with it the key benefit of allowing an estate trustee to offer proof of their court-approved authority pursuant to a will. Financial institutions often require that a Certificate of Appointment is produced, as proof of the estate trustee's authority to act, before estate funds can be dealt with. A Certificate may also be necessary if one wishes to enter into real estate transactions with respect to property that was owned by the deceased.
One reason why many individuals seek to avoid probate is to maintain privacy with respect to their family affairs. Once probate is applied for, the will becomes a public document, available on the registry where it can be searched for and reviewed by the public.
As is often the case, there is a financial element to the motivation behind avoiding probate. The estate administration tax, also referred to as probate fees, applies to all assets distributed under a probated will. In Ontario, $5 of tax is payable on every $1,000 of estate assets for the first $50,000, with $15 per $1,000 payable thereafter.
An individual may consider executing multiple wills in a way that allows a primary will to be probated, while another or multiple others are not, escaping further taxation.
Typically, a primary will deals with personal assets or is limited to real estate, while a secondary will or series of secondary wills address other assets, such as business interests. Incorporating multiple wills into an estate plan can also reduce the tax payable on the income generated by the estate.
If properly drafted, a secondary will can represent a trust, separate from that created under the primary will, with an independent graduated tax rate, reducing the total tax payable by the estate. However, a new proposal by the Ontario Minister of Finance is expected to limit this income tax benefit of planning with multiple wills by 2016.
Another option for those who wish to avoid depletion of estate assets by probate tax is to transfer real property and investment or bank accounts into joint ownership prior to death. Jointly-held assets will pass pursuant to the right of survivorship, such that the assets will be automatically transferred to the joint holder, passing outside of the estate. Similarly, for assets such as life insurance policies or RRSPs, if a beneficiary designation is made in favour of a beneficiary other than the estate, these can pass outside of the estate as well, and will not be subject to estate administration taxation.
Even if probate is not required to administer the estate, an estate trustee may choose to obtain it anyway. If there are concerns of claims against the estate, probate will run the limitation period and limit personal liability of the estate trustee.
The proportion of wills that are not being admitted to probate is currently growing exponentially. When making modifications to an estate plan to avoid probate and related fees, a lawyer should be consulted.
*Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.