Planning for Probate

I have been working more and more with clients who want to pass as much wealth onto their family as possible, without the government taking a large chunk. An important part of this planning is understanding what you can do to keep more wealth in your family’s pocket. According to Chartered Professional Accountants Canada, more than $1 trillion is expected to be handed down to younger generations in the next several years. This will be the largest wealth transfer in Canadian history, yet many Canadians still don’t understand some of the pitfalls when it comes to wealth transfer. Probate fees are one of the hooks that are cast out to reel in your money. 

What is Probate?

In Canada, probate fees are calculated on the value of your estate and vary from province to province. Your estate is defined as any assets that fall within your Will upon death. In British Columbia, probate fees are approximately 1.4% of the value of your estate, and assets that could be subject to probate could include real estate and non-registered investments. On a $10M estate, probate would be approximately $140,000.

So, how can you plan to combat probate, and keep more of your hard-earned money for the ones you care about? I’ll discuss three different but effective strategies to help you plan for probate.

Trusts

The first, is the use of a Trust. Let’s take Bill – he’s 75 years old, lives in BC and is a widower. He owned a successful auto parts wholesale business, as well as multiple real estate holdings. He sold his business several years ago but still maintains a sizable real estate portfolio to the tune of $20 million. If Bill simply lets his real estate holdings pass through his Will, they’re subject to a whopping $280,000 of probate fees. If Bill wants to avoid these probate fees, he could create an alter ego trust, or a joint partner trust and transfer his property into them. Upon Bill’s death, the Trust property passes to the trust beneficiary and not through the estate, therefore bypassing probate and saving Bill $280,000 on probate fees. Alter-ego and Joint Partner Trusts provide other benefits such as privacy, potential creditor protection and an alternative to managing property under a power of attorney.

Dual Wills

A second strategy to combat probate is with “Dual Wills”. Let’s take Mike– he owns a successful real estate brokerage firm and is looking for ways to protect his private company shares from probate. Mike can work with his lawyer to put dual Wills in place– The “primary Will” deals with assets that generally require probate, like real estate, bank, and investment accounts. The “secondary Will” addresses assets that are not expected to require probate, like shares of a private company. The primary Will is probated, and secondary Will isn’t, therefore sheltering the assets of the secondary Will from probate. Shares of a private corporation don’t require probate, so using multiple Wills is a great strategy for sheltering the value of shares from probate fees.

Beneficiary Designations

A third strategy to combat probate is with the use of investments that can designate beneficiaries. Examples of these are certain Pooled Funds, Permanent Life Insurance, and Segregated Funds. Let’s take Jane. Jane is single, 70 years old, and was the owner of a successful interior design business. She sold her business several years ago and has reinvested the proceeds of her business into a portfolio of stocks and bonds worth $25 million. If Jane’s entire $25 million portfolio passed through probate, her estate would be on the hook for $350,000 of probate fees. Jane could re-position her portfolio into Segregated Funds, name a beneficiary, and bypass probate. The money in her portfolio would still be invested but will now bypass probate and avoid probate fees. Jane could also re-position a portion of her portfolio into Permanent Life Insurance, name a beneficiary, and therefore avoid probate.

In summary, Alter Ego and Joint Partner Trusts, Dual Wills, Segregated Funds and Permanent Life Insurance are effective strategies to help plan for probate. When we build financial plans for clients, we often work together with your trusted lawyers and accountants to ensure the right strategy gets put in place.

Please reach out if you think this could be of help to you.

Visit Brent’s Profile

Business Owners

The most overlooked area of financial planning for business owners and incorporated professionals is the lack of integration between corporate and personal assets. When the majority of your assets are in your corporation you need very specific, specialized and personalized financial advice.

Learn More