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Listen to Getting Probate

This week on Hull on Estate and Succession Planning, Ian and Suzana discuss probate - what it is and when you need it.

Comments? Send us an email at hullandhull@gmail.com, call us on the comment line at 206-457-1985 or leave us a comment on our blog at www.hullandhull.com.

Getting Probate - Hull on Estate and Succession Planning Podcast #103

Posted on March 11^th, 2008 by Hull & Hull LLP

 

Suzana Popovic-Montag: Hi and welcome to Hull on Estate and Succession Planning. You’re listening to Episode 103 of our Podcast on Tuesday, March 11^th, 2008.

 

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada.  Here are Ian and Suzana.

 

Ian Hull: Hi Suzana.

 

Suzana Popovic-Montag: Hi there Ian, how are you?

 

Ian Hull: Just terrific, thanks. How you doing?

 

Suzana Popovic-Montag: I’m well, thank you.

 

Ian Hull: So just as a reminder, of course, we have our call in number at 206-457-1985 and if you want to look at our blog, our daily blog, go to our webpage at www.hullandhull.com and our e-mail address at hullandhull@gmail.com. We always welcome feedback and look forward to hearing from anyone who has any comments or wants to engage us at that level.

 

Suzana Popovic-Montag: So Ian, at the end of our last podcast we were just, sort of, wrapping up some of the preliminary considerations that an estate trustee who comes to meet with a lawyer and the lawyer, him or herself, would consider before actually doing that magical document, that application for probate or a Certificate of Appointment of Estate Trustee. And I just thought maybe before we move into that second phase of this whole process, we might just do a quick recap in terms of the discussions we’ve had over the course of the last few podcasts.

 

Ian Hull: Well go ahead, I think you’re best suited to recap as we go along.

 

Suzana Popovic-Montag: Great Ian. We did start, of course, by discussing sort of the difference between an estate where there was a Will that was going to determine how it would ultimately be distributed to the beneficiaries of the estate, and situations where there was no Will. And as we looked into a little bit of the discussions and considerations that people would think about in terms of funeral arrangements for a deceased and we talked about the situation where there are certain remedies that are available to a surviving spouse and what those options would be in the circumstances. We then touched upon briefly some discussions on the custody of children and guardianship of a child’s property in circumstances where a parent has died and we also had an interesting discussion on beneficiaries of an estate and things that would arise during the course of an administration and how we would look for beneficiaries, how we would advise them of their rights and that was a really neat podcast.

 

You did a solo podcast at one point, I believe it was our 100^th podcast, where you talked about valuation issues and that’s another thing that’s really important in the context of an estate administration. And if I recall correctly, our last podcast we talked about tax returns and considerations that executors and lawyers who are advising them should sort of keep in mind when they are dealing with these situations.

 

Ian Hull: Great, thanks very much. So now we’re at the point of getting probate. And I wanted to spend a couple of minutes on two fundamental points on this at this point in the process. One is probate itself.  It is typically required by banks and investment institutions and third parties who want confirmation by the Court that this is indeed the last and valid Will of the deceased. So its – and we’ll talk about it throughout this series no doubt, when you need probate and when you don’t need probate. But for the purposes of our discussion today, let’s presume of course we need probate.  An easy example would be if I had an investment account with a couple hundred thousand dollars in it, a bank or financial institution just isn’t going to release it typically without probate.

 

Suzana Popovic-Montag: And another common example is if there’s real estate. If there’s a house, or a cottage or something like that. In those situations, you’ll typically need probate.  But I think you make a good point about the fact that you don’t always have to. And that’s something that we should keep in mind.

 

Ian Hull: At this point in the process, typically when you’re going to make this application, the person has died some weeks later, you’re starting to discuss this – it’s not something you move urgently on always. In most cases, you’re maybe even a month or so after the death. So things have settled a little bit and so you want to take a deep breath and I want to encourage my clients to look at the nature of the assets and decide if you need probate at all. And we’ve talked about in past podcasts the fact that you could have primary and secondary Wills so that’s a two Will option. And those two Will options, give me one Will for the assets that need probate, another Will for the assets that don’t need probate, are important tools and you want to make sure you’ve sat down and considered those options because while the probate fee is not insignificant, it’s still 1.5% of the assets of the estate, and anything you can avoid paying in tax is a good thing.

 

Suzana Popovic-Montag: That’s for sure.

 

Ian Hull: The other thing that probate triggers, it seems from our practice and yours and my practice is predominately dealing with mediation and litigation in estates, is the fact that the act of applying for probate is often the tipping point in terms of contentious proceedings. As I say, typically we’re at some time down the road, maybe a month or so or maybe more after the date of death. The parties have started to consider their positions and when you go to apply for probate, this is often the time where you have to fish or cut bait.  Are you going to accept the Last Will and Testament being the document that’s being put forward at that time or are you going to challenge it? Are you going to take a run at it, so to speak? So it seems to me anyway, this is a really important turning point to sit back, consider your options, get advice, because the third component of this is, of course, if it isn’t contentious and you’re going to proceed with probate, now the clock is truly on in your fiduciary hat. I mean it’s probably on at law, and we won’t get into too much of that detailed analysis before you get probate, but it is certainly on, you’re a true fiduciary once you apply for probate. So you can’t let go easily and it’s an important turning point from even a non-contentious standpoint.

 

Suzana Popovic-Montag: Well, Ian, I think with that introduction, maybe we’ll look at some specific procedural requirements that actually arise when you’re trying to apply for a certificate, starting, of course, with deciding in what jurisdiction you’re going to actually file that application.

 

Ian Hull: And certainly that’s crucial because in a contentious environment, you typically have to commence your proceedings in the place where the deceased died. And obviously in a non-contentious, where you’re just applying for probate, you have to do it where the deceased died.  And in our mobile world, it’s not an easy answer all the time. In Ontario, for example, you can look to Section 7 of the Estates Act to get some guidance.  But what if you’re a situation where you have a person who lives predominately in Florida during the winter and then up in Canada, but lives at the cottage in the summer and then lives at a condominium in the off season, so to speak, and the rest of the year at Florida? There can be some discussions as to where you want to apply for probate. And some tricks of the trade because you may be able to get probate quicker in different jurisdictions. You just have to be careful.  The Local Registrar will ultimately be the one who will decide where it should be brought and I find that it’s not worth getting too cute about where the deceased died, because the Local Registrars are too smart to let us, sort of, take advantage of that.

 

Suzana Popovic-Montag: And that’s especially the case when there’s a timing sensitivity, like if you want to sell, for instance, a piece of property that’s owned by the estate and you need that certificate quickly, you want to make sure that you’re sort of in the right jurisdiction from the get go, so that there isn’t unnecessary delay because, yes, you’re right, those Registrars are very, very bright.

 

Ian Hull: So now in terms of the application, we don’t want to go through too much detail, the Ontario forms are particular and across Canada each jurisdiction has their own particular forms. But the one important theme and we’ve applied for probate across Ontario, certainly in different provinces…the one clear theme is back to the Registrars, the Court is very careful about these documents and they literally have to be letter perfect. And if they aren’t, the Local Registrars send them back for corrections.

 

Suzana Popovic-Montag: Another thing that we definitely run across quite frequently is the fact that a bond is required if the deceased died without a Will or if the person who’s applying to be an estate trustee doesn’t reside in Ontario. Or the different situation, of course, is if you’ve got an applicant who’s a trust company, then they don’t need a bond, so even if they’re not named in a Will, per se.

 

Ian Hull: And that bonding requirement can be tremendously onerous because…a couple of things; one is, is that you’re putting your own personal assets at risk. Basically, the Court wants to know that if you abscond with the money as an executor, there’s something behind it, some security to make sure the beneficiaries ultimately get their money. And if you haven’t been a named trustee, the Court gets a little more nervous obviously. But bonding requirements are really onerous and the bonding companies, certainly across Canada, are getting very, very tight about when they will issue bonds. The premiums are very expensive and so a lot of the time we’re finding anyway in our practice that we have to turn to the trust industry to step in, in administrations of this nature. And one of the things you always hear is, “Oh my gosh, the trust companies are going to be too expensive.” When you get that answer from you clients, Suzana, what do you typically tell them?

 

Suzana Popovic-Montag: Well then you say to them, “Well what is your alternative?” and as you say, the bonding requirements are really difficult and as we know, certainly from the profession, that there’s just a few companies out there that will even do it and when they do, it is very expensive.  And typically it tends to be less expensive than having a professional trustee in place.

 

Ian Hull: And the one great fallacy, too, is that the trust companies don’t charge anymore than anyone else. They can’t. There’s a certain limit to what they can charge. And because they’re in the business, what I have found is, is that I will typically go to the trust company, negotiate the fee before we agree to put them on as the estate trustee. So you get a competitive fee for their services. And in fact, it can often be more competitive than if you went to a local lawyer or accountant because they’ve got an infrastructure set up that is more efficient for them to run an administration than with some. So it’s worth looking into anyway.  I mean, we’ve got some great local counsel and local chartered accountants who will do it in a very efficient way too.  So it’s one of those situations where I just think, when you have a bonding requirement being thrown at you, it’s worth pushing back to your lawyer and saying, “Wait a minute. I mean, okay, I understand the Courts are going to insist on that.  But what alternatives do I have and does the estate have and can we avoid this?” and those are just a couple of suggestions.

 

Suzana Popovic-Montag: Those are great thoughts Ian, thank you very much. I think that basically brings us to the end of this podcast. Thank you for joining me and I look forward to our next podcast.

 

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

 

To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

 

Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.

 

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Listen to Probate Issues and Requirements

 

Probate Issues and Requirements - Hull on Estates Podcast #89

Posted on December 11^th, 2007 by Hull & Hull LLP

 

David Smith:  Hello and welcome to Hull on Estates.  You’re listening to our next episode in our continuing podcast series.

 

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.   Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills.  Now, here are today’s hosts.

 

David Smith:  Good morning.  Today Allan Socken and I are speaking about probate issues.  Good morning Allan.

 

Allan Socken:  Good morning Dave.

 

David Smith:  Allan, we thought what we would do in terms of our discussion today is talk about probate generally and when probate is required in the province of Ontario.  Now, Allan, am I correct in thinking that probate is now a somewhat dated term?

 

Allan Socken:  Yes, that is correct, David.  Currently the term that is used when probating a Will is referred to as a Certificate of Appointment of Estate Trustee with a Will, or the case when a person dies without a Will or intestate, someone can apply for what is known as a Certificate of Appointment of Estate Trustee without a Will.

 

David Smith:  Oh, so that’s interesting.  So, you know, quite a different terminology.  But I suppose in a sense it’s more lay friendly in the sense that it’s more evident exactly what we’re talking about.  I think the term “probate” maybe had confused the public or created this impression that there was something arcane or overly legally technical about a process which simply consists of proving the validity of the last Will, right?

 

Allan Socken:  Correct.

 

David Smith:  And Allan, why do we need probate?  And let’s refer to it as probate just because it’s easier in terms of using less words.  But why do we need probate typically in an estate?

 

Allan Socken:  Typically probate is required because it enables the estate trustee, which was previously known as an executor, to administer the assets and liabilities of the estate as well as the fact it gives some comfort in showing that even if the Will subsequently is determined not to be the last Will and testament of the deceased, any administration of the estate that has taken place until a subsequent Will is shown to be valid, leaves the executor without any liabilities and the administration that has occurred to date is fine.

 

David Smith:  Right, and that’s an important point, isn’t it, Allan?  I mean, if we’re, as lawyers, advising executors, we want to make sure first of all that if they come in with what they say is the last Will, we want to be sure that it is the last Will, because if it isn’t the last Will, it’s of no validity.  And the Court’s seal of approval, which is what a Certificate of Appointment of Estate Trustee is, essentially tells the world that this executor has the authority to act under that Will.  So I completely agree with that in terms of the kind of advice that we want to render to an executor.  If we’re thinking about who demands probate, who are we talking about here, Allan, in terms of we think about estate assets.  Say we’ve got a house, some bank accounts, an investment portfolio, a safety deposit box, that all belong to the deceased.  Can we ever access those without a Certificate of Appointment of Estate Trustee with a Will, or is it typically going to be required?

 

Allan Socken:  Well there are certain circumstances in which a Certificate of Appointment of Estate Trustee with or without a Will is actually not required.  For example, property that is registered under the Registry Act does not require probate, as it was known previously.  In addition, insurance policies, RRSPs, RIFs, all usually don’t require probate as well.

 

David Smith:  Well let’s talk briefly about that point.  I guess when we’re talking about those last three items you mentioned: insurance policies, RIFs, RRSPs, typically the deceased is going to designate a beneficiary of those assets other than the estate, correct?

 

Allan Socken:  Correct.

 

David Smith:  And the purpose, of course, for doing that is to avoid estate administration tax or probate fees.  And maybe this is a good segway to just briefly talk about the merits of probate fee avoidance, because if we do designate beneficiaries of certain assets that pass outside of the estate, we avoid probate tax.  Likewise, if as a testator and in planning my affairs, I jointly hold assets with someone rather than keep them in my own name, when those assets pass by right of survivorship to the survivor, they’re not going to be included in the probate fee calculation either.  So I think, Allan, over to you in terms of can you just explain to us briefly what you understand about estate administration tax, or probate fees as they’re commonly called, and how they’re charged?

 

Allan Socken:  Well, up until recently, until 1998, there was a direct tax levied in respect of probating a Will.  In a sense, it was probate tax.  However, in 1998, the Supreme Court of Canada found that the probate fees charged by the Ontario government were unconstitutional, as they constituted a direct tax which could not be levied by regulation.  The government then proceeded to quickly amend the process and would satisfy the Supreme Court’s ruling by invoking something that is known as the Estate Administration Tax, 1998.  And in effect, what the tax says is that for $5 for each $1,000 or part thereof of the first $50,000 of the value of the estate, is taxable and $15 for each $1,000 or part thereof by which the value of the estate exceeds $50,000, is taxable.

 

David Smith:  I guess, and you know, Allan, my initial thought whenever I hear that figure is, you know, gee, that’s just not a really exorbitant tax.  I mean the lengths to which people will go in avoiding this tax, which amounts to $250 bucks on the first $50,000 of assets, sometimes seems to me to be overkill.  I mean this is not a terribly significant tax in monetary terms, is it?

 

Allan Socken:  No, because it all comes down to what is meant by the term “value of the estate”.  In a sense, value of the estate simply means the assets held under Section 32 of the Estates Act.  In effect, the actual assets held by the deceased at the time of death, excluding assets that were jointly held and other things that we’ve talked about before such as insurance policies that don’t form part of the estate.  So in effect, even though the tax sounds as though a substantial amount of the deceased’s assets will in fact be taxable, in reality, a substantial portion through careful estate planning may in fact not be taxable.

 

David Smith:  Right, that’s an excellent point, Allan.  And I think that’s something that everyone should sort of…you know, estate planning is a good thing and the idea of avoiding estate administration tax…I mean, nobody likes paying taxes for sure.  But I sometimes wonder when I think about the costs associated with litigation over questions left by a deceased respecting whether or not he intended a jointly held asset to result back into his estate or her estate, I sometimes wonder if had the deceased known what would have occurred and saw how much litigation can be created by these attempts to avoid probate tax which often can create confusion, whether in fact that testator might have said, you know what, I’m going to just pay the tax and keep things simpler.  Of course, the other way to do this is to document your intentions and, you know, that’s a subject for another podcast altogether.

 

Allan, I think just to keep things moving along and to do as much of a sort of survey of probate as we can do, let’s talk a little bit about probate as it relates to litigation.  Now I understand that there’s a specific document or appointment called a Certificate of Appointment of Estate Trustee during Litigation.  You’re familiar with that?

 

Allan Socken:  Yes, David.

 

David Smith:  And Allan, how does that work?  How does that differ from an estate trustee with a Will or an estate trustee without a Will?

 

Allan Socken:  An estate trustee during litigation simply means that the estate trustee or executor is in charge of preserving the assets and dealing with them with the best interests of the beneficiaries in mind throughout the litigation process.  And that’s more it’s job as opposed to simply administering all the assets when the Certificate of Appointment of Estate Trustee is given.

 

David Smith:  Right.  I think the fundamental distinction is what you touched upon which is, well, the biggest difference is an estate trustee during litigation, as you implied, cannot distribute the estate.  His or her job is to hold the assets, do everything that an estate trustee would otherwise do but not distribute the estate, so that a judge can ultimately decide who’s going to get the money.  And an estate trustee during litigation is appointed by a Court Order and is under the supervision of the Court.  And that’s a fundamental distinction from the appointment of another estate trustee.  In a sense, it is a grant of probate but it’s strictly regulated and restricted by the appointment of the Court and the fundamental distinction, as you and I both alluded to, is the fact that the estate trustee during litigation simply cannot distribute without an Order of the Court.  And I might point out, even if all the beneficiaries or litigants to the case agree that they can distribute, that estate trustee during litigation is still going to say to them, you know what, I was appointed by a Court Order and I’m going to need a Court Order directing me to distribute even if you all agree that I can distribute.

 

Now if…an interesting question which I’ve run into frequently is, do you need probate or an appointment of an executor to commence litigation or respond to litigation?  Have you run into that issue before, Allan?

 

Allan Socken:  I have with several of my files, actually, to date.  And that’s a very interesting question, simply because from my understanding, is when commencing litigation, initially an executor or estate trustee is not required.

 

David Smith:  What’s the applicable rule, Allan?

 

Allan Socken:  The applicable rule is Rule 9.03(1) of the Rules of Civil Procedure which states “where a proceeding is commenced by or against a person as executor or administrator before a grant of probate or administration has been commenced and the person subsequently receives a grant of probate or administration, the proceeding shall be deemed to have been properly constituted from its commencement”.

 

David Smith:  Right, and you know, that’s important, Allan, because you can often have cases where litigation is necessary.  Where, for instance, an estate needs to commence a claim to comply with the limitation period or what have you.  And it may be that the litigation has to be commenced before the grant of probate occurs.  And so what the lawyer in that situation should do is issue the proceeding naming simply the estate of, you know, John Doe, as the plaintiff and then later on, he can correct it in terms of naming the appointed estate trustee once probate is granted.  So, you know, that’s a good point as well.

 

Allan, I’ve really enjoyed this discussion.  It was good to touch upon these various issues and certainly I look forward to podcasting with you in the future.  And I think what we can leave this podcast with is a better understanding, hopefully, of the situations in which probate is required.

 

Allan Socken:  Thank you very much, David.  I also enjoyed podcasting with you.

 

David Smith:  Thanks Allan.  Take care.

 

Allan Socken:  You too.  Bye-bye.

 

This has been Hull on Estates with the lawyers of Hull & Hull.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

 

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

 

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

 

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Listen to "Multiple Wills"

This week on Hull on Estate and Succession Planning, Ian and Suzana continue their discussion about tax plan wills and issues surrounding multiple wills.

 

Multiple Wills - Hull on Estate and Succession Planning Podcast #81

Posted on October 9^th, 2007 by Hull & Hull LLP

 

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #81 of our podcast on Tuesday, October 9^th, 2007.

 

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada.  Here are Ian and Suzana.

 

Ian Hull:  Hi Suzana.

 

Suzana Popovic-Montag:  Hi there Ian, how are you today?

 

Ian Hull:  I’m just great, thank you.

 

Suzana Popovic-Montag:  That’s good.  I apologize for my raspy voice.  I’m coming down with a little bit of a cold and after listening to your last podcast solo, I’m quite afraid of losing my job here.  So I thought, bad voice or not, I got to show up today.

 

Ian Hull:  No, we couldn’t do it as a solo event, because it’s a lot more fun to do it as a team, notwithstanding your ill health.

 

Suzana Popovic-Montag:  Well, I think you did a great job, Ian.  And you introduced our new topic and that was just great to be able to move on to something different now.

 

Ian Hull:  Thanks so much.  Well, I didn’t enjoy it because it’s not the same without being able to have a little banter back and forth.  And it reminds us, we just, well this podcast will launch into the system, we’ll have just finished our Breakfast series that we conduct.  We do a Breakfast series three times a year, the firm Hull & Hull does it.  And speaking about banter back and forth, it was a good session, some really worthwhile topics were covered.  We actually touched on some of the issues that I spoke about at the podcast last week, so that was kind of fun in terms of getting other perspectives.  But I implore you, if you’re interested, or encourage you…implore is probably too strong a word…encourage you to look at the web page, because what we typically do is we webcast these as well.  So you can get a look at it currently, if you want.  But we also eventually, once we get ourselves organized, we’ll put the video of what we did last Friday on the web, so you can feel free to look and listen as you see fit.

 

Suzana Popovic-Montag:  And our website, just for those who are interested, is

www.hullandhull.com.

 

Ian Hull:  Terrific.  Well, let’s stay focused on what we’re trying to do is, you know, I mean, as I said in my last podcast, we’re talking about some of the concepts that Lindsay Histrop so eloquently presented to us at a conference we were recently at.  And we’re trying to sort of expand on some of those because we have a little more time than Lindsay did.  And I tried to…the sense that I got from Lindsay’s talk was sort of there are ways to tax plan a Will, that we can’t forget that part of it.  And we’ve spent a lot of time talking about the other half.  And we’re now coming back to what is the grounded part of it, the more sort of the meat-and-potatoes part of Will planning. 

 

And so why don’t we continue on with that approach.

 

Suzana Popovic-Montag:  Okay Ian, and just to sort of recap, I think we basically saw three points to the idea of a tax planned Will in terms of objectives.  And the first being, of course, the, you know, the one that traditionally everyone uses as an excuse to plan a Will, and that is the avoidance of probate taxes, which here in Ontario is called the Ontario Estate Administration Tax.  And it’s approximately 1.5% of the asset value that you have passing under probate.

 

Ian Hull:  And in the second part of what we obviously need to turn to when we’re talking about planning Wills and estate planning and considering the overlay of the tax issues in terms of the concepts, is really just talking about avoidance and deferral and what we can do in that regard, talking about a little bit of the capital gains taxes, and so forth.

 

Suzana Popovic-Montag: And then in terms of the third objective there is, of course, you know, avoiding US estate tax on US property and planning for a US citizen as well.

 

Ian Hull:  Alright, so coming back to the last topic.  I finished off talking about some joint ownership issues again with the concepts of the tax implications.  But let’s talk about what is certainly in most jurisdictions now a fairly fundamental estate planning step that is tax driven.

 

Suzana Popovic-Montag:  And that, I guess you’re referring to, Ian, is the use of separate Wills, so more than one Will to plan for someone’s estate.

 

Ian Hull:  Absolutely.  And in Ontario, we sort of got this introduced to us by legislation.  It was back, I guess, some years ago now, the Granovsky decision that opened the door up to what we call, here in Ontario, multiple Wills.  And it’s a common estate planning phenomenon.  And it’s even used in some respects in the US for certain trusts planning issues.  But the concept is is that you create more than one Will.  And it seems intuitively at the outset something that isn’t natural.  And we think, well wait a minute, how can you have more than one Will?  There’s the traditional approach before Granovsky and before we got into this was that many people who had US assets did a separate Will for the US assets.  We’re going to talk about that in some future podcasts when we deal with the US issues. 

 

But this is very different.  This is using in your current location, your jurisdiction where you live and where you typically own most of your assets, this is using an estate planning technique that is fundamentally tax driven, that allows us to create more than one Will.

 

Suzana Popovic-Montag:  And the idea really is to have each Will deal with separate assets.  So it’s not like you’re speaking about one form of asset in two different Wills.  It’s just dividing your assets into two different Wills so that one Will is traditionally one that you would probate, so you would seek Court approval of that Will, pay the requisite estate administration tax or whatever probate fees are associated with it, and then you could administer that portion of your estate.  The other portion would be dealt with in a separate Will that doesn’t need probate.  And so you can still provide for how you’d like your assets to be distributed, but you don’t have to pay tax on those assets and you don’t have to seek probate of that Will.

 

Ian Hull:  That’s right.  And it’s the probate tax on the assets of the separated Will that can be so fundamental in terms of the tax avoidance.  And it’s entirely legitimate tax avoidance.  But, so Suzana, let me understand.  We’ve got sort of the traditional Will that we’re going to put some assets in and then we’ll call the secondary Will the Will where we’re going to put other assets in.  What are the assets we’ll want to put in to the traditional primary Will, so to speak?

 

Suzana Popovic-Montag:  Well they are usually Ian, the assets that the authorities who are holding, or have some form of control over those assets, need proof of the fact that the individual who wants to bring them or liquidate them or bring them into the estate has authority to deal with those assets.  So, for instance, we know that, you know, large bank accounts, typically the banks will not just pay over money when you show them a Will that names you as an executor.  They want Court approval or Court proof of the fact that that is the Last Will and Testament, so that you are the person with authority to liquidate that investment.  And then they’ll pay that money over.  And it’s because of the fact that there are certain assets that do require some form of proof, or they require that Certificate that we have to actually obtain probate of those assets.  Other assets, which can…

 

Ian Hull:  Sorry, before we go to the other assets, I just want to make sure I understand though.  Because, so in this primary Will, we’ve got, like you say, this investment assets and so forth.  And when you say the Court proof, I guess we’re talking about we’ll get probate and that means either the common form, which is just the over-the-counter probate with the proper application or the more complex solemn form, which is a Court sort of generated process, which we don’t really need to worry about the difference there, just that it’s probate.

 

Suzana Popovic-Montag:  Absolutely.  And the point there really is, Ian, you don’t need to do this for every asset.  And a Will speaks from death.  In a Will, if it appoints an executor, it does really vest that individual with authority to act.  But sometimes people will need that one extra step, like you said, proof in common form, proof in solemn form, to actually prove that that individual has authority.

 

Ian Hull:  Okay, and then like you say, it’s these third party entities like the banks that say, you know what, we’re not going to just trust that piece of paper, we want you to get it sort of stamped by the Court that that is indeed the Last Will of the deceased that generates it.  Now, so we’ve got, let me just think through this.  So we’ve got the banks obviously who will typically, and my experience is, anything over $5,000 they’re going to want it.  The investment companies are going to want it as well.  And in many jurisdictions, real estate as well.

 

Suzana Popovic-Montag:  That’s right, yeah, because and you can sort of understand that it’s one of the biggest assets normally in someone’s estate and the individuals who are purchasing that from the estate trustee want to make sure that that individual does have the authority to deal with that asset.  And, of course, they do but, you know, it’s that little extra comfort of a Court stamp or a Court stamp of approval on it.

 

Ian Hull:  So these third parties then don’t get sued for sending out assets to the wrong person.

 

Suzana Popovic-Montag:  That’s right.

 

Ian Hull:  Alright.  So those are sort of the main assets that would be, I’m sure there are other assets, but for the time being, let’s sort of move now to this secondary Will.  And why would we have a secondary Will, what kind of assets would go into that?

 

Suzana Popovic-Montag:  Well, traditionally we see people put private company shares in that separate Will.  And the reason for that is because that again is normally one of the larger aspects of an estate in terms of the value.  And so to be able to avoid probate fees on such a valuable investment or company share worth, it is a really good way to sort of deal with that asset.

 

Ian Hull:  So we have these private companies and when you say private companies, of course, we’re talking about a situation where someone might have an investment portfolio that they put in a Holdco.  They separate it from themselves and put it into a company for, you know, creditor protection, for other tax reasons.  So, say there is a portfolio of $1,000,000 and you’re running it through a local investment dealer and it’s in Holdco, Xco is holding the assets.  Then those assets would, in the old days, normally fall into the primary Will and they would be subject to probate tax.  Now, we are able to, what you’re saying is we’re able to separate it.  And we put the Holdco assets and we refer to it specifically in the secondary Will and it’s important, not that we want to get into the drafting that it’s important how we describe the preambles on the two Wills and so on, there’s some technical issues.  But what you’re saying is is that we can put those in that secondary Will and then literally transfer those assets to the beneficiaries under that Will without probate and all you have to do is create the necessary internal documents through the director’s resolutions and so forth, to pass the ownership over.  And typically the directors are all closely related or know each other and so there’s a comfort there.  The directors know that indeed that is the Last Will and we’re not dealing with some mystery Will here.  So they don’t need that extra Court stamp.

 

Suzana Popovic-Montag:  That’s right Ian, absolutely.  And the key really is that it’s private company shares.  So if you hold stocks of, you know, a publicly traded company, of course that’s something that’s going to go back into the primary Will.  So it’s just important to keep that in mind.  And I’ve seen certainly, in addition to just those private company shares, people also will put, you know, their art or their antiques or other personalty in this secondary Will as well.

 

Ian Hull:  And so, just so it will be clear though, in Holdco, say we’ve got Holdco created.  You can actually pass the shares, the 100 shares of Holdco to your kids, for example.  Now that Holdco can hold private company and public company shares. 

 

Suzana Popovic-Montag:  Absolutely.

 

Ian Hull:  You could have, you know, Bell Canada in Holdco.  And it’s a great way again because Bell Canada doesn’t care.  All they care is is that Holdco still owns the shares and so there’s not the need for that extra layer of probate fees.

 

Suzana Popovic-Montag:  That’s right Ian.

 

Ian Hull:  Alright, terrific.  So I think that covers us off on that issue.  And it’s an important issue.  Not necessarily one that comes to mind in every case but if you’ve got a situation where you’ve got sufficient assets to consider it, that secondary Will is important from a tax avoidance standpoint.

 

Suzana Popovic-Montag:  That’s for sure.  Well thank you very much Ian, I look forward to our next podcast.

 

Ian Hull:  Thanks Suzana.

 

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

 

To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

 

Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.

 

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Listen to "Probate Fees"

Read the transcribed version of "Probate Fees"

During Hull on Estate and Succession Planning Podcast #69, Ian and Suzana discuss the topic of probate fees. They discuss probate fees, probate planning, and tax avoidance.

Click "Continue Reading" for the transcribed version of this podcast.

Probate Fees - Hull on Estate and Succession Planning Podcast #69

Posted on July 17^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #69 of our podcast on Tuesday, July 17^th, 2007.

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: Hi there Ian, how are you?

Ian Hull: Just great.

Suzana Popovic-Montag: That’s good.

Ian Hull: Beautiful summer day.

Suzana Popovic-Montag: It’s lovely.

Ian Hull: Well, why don’t we talk a little bit today about this topic of probate fees. We’ve touched on it just recently and not only is it a hot topic, but it’s an important topic. We are engaged in cases where litigation can ensue just over the whole question of probate fees.  And a lot of planning gets sort of focused around it.  And as we’ve said in the past and I’ll say until I’m blue in the face, it’s sort of a crazy thing to worry about when it’s approximately 1.5% tax in Ontario jurisdictions and it’s a modest tax in most others in Canada. We’re very different than the US which has a, I would say in some respects, a more draconian tax system.  And therefore most of the estate planning in the US is done pre-death and is set up through trusts and so forth.  So that helps avoid taxes at that jurisdiction. 

But the probate tax is a good illustration of really what is an overwhelming issue for all estate planning.  And we won’t get too Ontario-centric about this, but the problem being that, you know, you want to pass on your estate as tax efficiently as possible. So why don’t we turn and talk about the probate tax and some of the…use it more as an illustration of the kind of issues that arise and what is a constant theme in estate planning and that is, tax avoidance and not tax evasion.

Suzana Popovic-Montag: Very important distinction, Ian. Well certainly from a probate planning perspective, and you’ve just pointed out the fact that so much of the planning is done around avoiding a tax which, at the end of the day, is quite miniscule compared to the legal fees that can be incurred as a result of a poorly planned estate which results from this fancy maneuvering that otherwise, you know, isn’t in retrospect all that very important. But it certainly, you know, I know we always counsel people that it’s much more important to focus on the tax consequences, the capital gains, the income tax consequences of certain assets and what happens to them upon death, as opposed to just focusing on probate fees.

Ian Hull: So in our past podcasts, we’ve discussed the probate itself.  And just to recap a little bit, in a sense, when we have to pay a tax on the probate, we’re paying a tax because we’re getting the seal of approval from the court that this is indeed he last Will of an individual. So in a way, you’re getting what you pay for.  You are actually getting some value for the tax payment. 

Alright so one of the things that when we’re addressing the whole question of paying probate fees, is the triggering event of probate itself.  And while it is never fun to pay a tax, one of the benefits that getting probate does is it starts the clock on claims that can be made against an estate. And so, just coming back to this theme that there is some value added for this tax and the payment of the tax.  One is, is that you’re getting this seal of approval from the court.  And two is, is that at law, you’re actually starting the clock on many claims that can and are often made against an estate.  And that too can bring…I mean it’s a type of insurance you’re paying.  Because, for example, with a dependent’s relief claim, you cannot make a dependent’s relief claim in Ontario beyond the six months from obtaining probate, without some problems.  I mean, there’s no hard and fast rules.  There’s always wiggle room and things like that.  But the basic law is, and the principle is, that you’ve got, the clock starts running when someone stands up and says, hey, I’m executor and I’m ready to administer this estate. And it makes policy sense because you don’t want executors to feel that they’re exposed for an endless period of time when they’re administering an estate. So the law has stepped in and said well, there is only so much time you have before you can make claims.  And one of the trigger starting points when you’re obtaining probate is that you would announce to the world, typically, through an advertisement for creditors.  So you’d start the clock running. And again, as I say, it’s a value add to this tax that you’re paying.

Suzana Popovic-Montag: And ultimately, therefore, protecting the estate trustee and the estate beneficiaries.  So I think it’s an important thing to keep in mind. Another benefit of actually probating assets or probating a Will is that, in addition to protecting the…sorry…

Ian Hull:  So another benefit that might be, we want to look at in terms of this whole idea, you know, as we say, we’re stepping back and saying, should we pay the tax or not? And another benefit would be the whole idea of, and we talked about this in previous podcasts, but let’s…it jump starts the process, it gets the administration going.  The actual act of applying for probate sort of wakens up the process.  And in some cases, people (a) don’t want to deal with the death of a loved one or (b) don’t really want to, aren’t anxious to get that part, they’re not ready to turn the corner.  And what we find with our clients is, we’ll often say is look, you know what, it is a terrible loss that you’ve suffered through. But, you know, after six months or after three months or even shorter, within six months, you have to start to deal with the business side of things. And I always remind my clients that it’s driven, in large part, by the income tax, not the probate tax, but the income tax obligations that an estate has to attend to. And so, you know, sort of pushing someone into probate starts the thinking about how we’re going to deal with what is, in Canada, a primary concern.  And that is, making sure that the deceased’s taxes are paid. Now you don’t need necessarily probate to pay taxes for the income tax purposes.  But again, it’s a trigger point and it gets people, gets the juices flowing, so to speak, and gets people going on what is sometimes a task that they want to push to the side.

Suzana Popovic-Montag: Now we know, Ian, from a planning perspective so many steps are taken by people who try to minimize the value of their estate at the end of the day, so that that tax that they have to pay is as small as possible. But there also are, in addition to, you know, the benefits to applying for probate, there’s a lot of downside to doing a lot of fancy manipulation before, during the lifetime, in order to avoid what could turn out to be quite a minuscule tax at the end of the day. And one of the things that I’m thinking of in particular is the fact that if you start giving your assets away during your lifetime, then you’re putting those assets out of your control and in the hands of someone else who may or may not have the same plan or the same, you know, intention for those assets that you might otherwise have.

Ian Hull: And that goes, that ties right into the whole question of joint accounts.  And obviously, one of the primary reasons why you…what often will happen is you plan around this probate tax is that you create these joint accounts, hoping to simply avoid the probate tax. Without getting into the legalities of all of that, it does…it is an effective step. But again, as you say, the whole issue of control comes into play.  

And the other primary step that people take to avoid this probate tax, so to speak, is, of course, creating the secondary Wills. So what, or some call tertiary Wills or additional Wills.  Essentially you have one Will for the assets that need to be dealt with under probate and you have one Will that don’t. And one example of that is often the corporate Wills.  And it’s funny because what these Wills were set up to do was to create and to give some consistency.  You would essentially create this corporate Will.  And that Will would help avoid any taxes that would be paid on the probate side because you wouldn’t need probate for that specific asset.  And we’ve talked about in other podcasts, there was a case in Ontario that sort of led the way to allow this to happen legally. But it raises a couple of major problems.  We’ve talked about was the fact that a dependent’s relief claim doesn’t get triggered, so there could be claims against the estate if you don’t get probate of the secondary Will. 

And another thing that it raises is that if you have a substantial asset in the secondary Will, you may not want to hide behind the probate fees.  You may, indeed, want probate for that document.  You may want to have the comfort that if your passing over millions of dollars within the corporation, that you indeed have authority to do that.  And it’s just another side issue that comes back to this whole circular problem in that there are no easy answers to avoid these probate taxes.  And maybe what we should be focusing on, instead of creating estate plans that deal with losing control, that deal with expensive steps to avoid the probate tax, maybe what we should be focusing on is accepting that maybe that’s a part of life and that’s a part of the process.  And then, you know, creating our estate plans knowing that that is one of the taxes we’re going to have to pay. But that’s sort of, you know, sort of my own theory.  And I know a lot of estate planners would disagree and they would want to work very hard to avoid this tax.  But boy, we keep seeing more and more problems that get created as a result of the planning around the tax. 

Okay, well so, for the purposes of today, we really wanted to highlight this issue one more time, because it touches on so many assets.  And it touches on real estate based assets, on corporate assets and on bank accounts and so forth.  And as we’ve said before, for example, most institutions require, financial institutions, will require probate.  So it’s one of those things that we can’t necessarily avoid if what most Canadian estates are made up of is typically maybe an RRSP account, maybe an investment account, a bank account and so forth.  And so the probate tax is going to need to be paid. But when you have some creative planning available to you, it’s something that you want to visit, you want to look at what techniques you can step in to avoid the tax.  But keeping in the back of your mind that you don’t want to be penny wise and pound foolish, and create more problems than it’s worth. 

Suzana Popovic-Montag: That’s pretty sound advice.  Thanks very much, Ian.

Ian Hull: Thanks Suzana.

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.

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In Ontario, an estate becomes liable for probate fees when the estate trustees apply for a Certificate of Appointment. Depending on the value of the estate, these fees can sizeable and cannot by set off by debts owed by the Deceased or estate-related expenses.

The main reason probate is required is because the estate trustees will require proof of authority before they are permitted to deal with certain assets. For example, generally speaking, banks will not release funds to estate trustees unless they have a Certificate of Appointment. Similarly, estate trustees will usually not be able to transfer real property into their names, list it for sale, or enter in to an agreement of purchase and sale without the Certificate of Appointment. Luckily, not all estates require a Certificate of Appointment to be administered. If the estate trustees can avoid applying for probate, then they can avoid paying probate fees.

There are several planning techniques that can be used to avoid the necessity of a Certificate of Appointment and, thus, paying probate fees:

•  Making inter vivos transfers of property - if you give it away prior to death, it won't form part of your estate;
• Making more than one Will - in one Will you deal with assets that will not require probate, while in the other Will you deal with assets that will; 
• Making RRSPs, RRIFs, and insurance policies payable to a named beneficiary, rather than your estate; and Transferring property into joint ownership.

By giving some thought to how you structure your estate, it might be possible to save a significant amount of money on probate fees - or avoid them all together.

Thanks for reading,

Megan F. Connolly

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For our last blog before the Holiday Season, Ian and I wanted to mention the final four legal considerations to keep in mind when dealing with joint accounts.

Firstly, and in particular, mental capacity issues always need to be considered at the time that the joint account is established.

In addition, Powers of Attorney are often the source document behind the establishment of a joint account and the use and abuse of that document at the time that the joint account is established needs to always be considered. Another high-level abuse comes through the use of Internet banking, where one of the family members obtains the password of the parent and then simply proceeds to do his or her banking at will.

Thirdly, there is always the difficulty of probate fees in Ontario in that, if the joint account is to flow into the hands of an individual or an estate, probate fees may or may not be payable. Typically, the joint account will be established and then it flows into the hands of the survivor who then distributes it in accordance with the Will. Technically, it could be argued that the joint account proceeds would necessarily attract probate fees.

And finally, there is the whole issue as to how the assets flow at death. The question always arises in respect of this issue and in regard to whether or not the asset flows to the joint account holder personally and without any sharing, or is it to be distributed in accordance with the Will. Therefore the Will document itself can be particularly relevant.

We hope that mention of some of the legal issues that attach to the creation of a joint account has been helpful. We wish you and your families a wonderful Holiday Season!