In 1992 Ontario increased its probate fees from 0.5% to 1.5%, for estates over $50,000. This has led to reconsideration of the role of probate and of methods to reduce probate fees.

Since the fees are payable on the gross estate, without deduction for liabilities, except real estate mortgages, transferring assets into a company, which assumes one’s debts, can save fees.

Gifts made during one’s lifetime are not part of one’s estate for probate purposes. This includes both outright gifts and gifts made by transfer to trusts established in one’s lifetime.

In the United States, it is common for a person to avoid the expense of probate by transferring his major assets into a revocable inter vivos trust (sometimes called a living trust), under which he retains the right to the whole of the trust income and he can require the trustee to return to him at any time any part of the capital he wishes. The trust also provides that upon his death the remaining capital will be distributed in much the same way as under a will. Because this is not a will, the property in the trust at his death is not part of his estate for probate purposes and no probate fees are payable on this property.

However, the transfer to such a trust is probably regarded by Revenue Canada as a disposition for tax purposes. This means that if the property transferred is worth more at the time of transfer than its cost, the difference will be treated as a capital gain for tax purposes, 75% of which will be included in income.

A transfer to a trust for the exclusive benefit of one’s spouse during the spouse’s lifetime will not be subject to tax, even if the property transferred is worth more than its cost. Therefore, one method of avoiding probate for appreciated property is to transfer it to such a trust. The income and gains from the transferred property, or any property substituted for it, will continue to be taxed as the transferor’s income and gains.

A gift may be made even on one’s deathbed and it will be legally effective, even if it is made on the understanding that if one recovers, the gifted property will be returned. Such a gift also escapes probate fees.

It seems to be the case that if a beneficiary designation for life insurance, an RRSP, an RRIF or a pension plan is made in one’s will, it will be treated as part of the estate for probate fee purposes. A separate beneficiary designation, outiside the will, which is made for a life insurance policy, however, is clearly not part of the estate and the death benefit under the policy is not subject to probate fees. It is less clear with respect to the other beneficiary designations made outside the will whether they involve liability for probate fees, but people are resolving this question in their favour.

If a separate beneficiary designation, outside the will, is made for a life insurance policy in favour of a charity, the death benefit will NOT be treated as a charitable donation in the year of death. To avoid this situation, such a beneficiary designation should always be handled by naming the estate as the beneficiary of the policy and providing in the will that the policy proceeds are to be paid to the charity. (However, this does not apply to life insurance policies which are owned by, and payable to, a charity.)

Land registered under the Ontario Land Titles system cannot be transferred on the owner’s death without probate of a will or letters of administration. However, most land in Ontario is registered under the Registry Office system, which does not require probate of the will. It therefore seems possible for an individual to have two wills, one dealing with his Ontario Registry Office land and the other dealing with all his other assets. If only the second will is submitted for probate, it is not certain that the probate fees will be payable only on the assets dealt with under that will. This technique has been used successfully, but it is under review by the judges in Toronto.

Marketable securities, government or corporate bonds and bank accounts will not be transferred after the death of the registered owner without producing letters probate or letters of administration, except for assets of minor value. This assures the financial institution that the individual has died, that they are getting his last will, not subsequently amended, and that the people who are requesting transfer are properly entitled to do so. Hoever, probate will not be required by a family-held company, where the directors will know that the will is proper, even without probate. Consequently, it may be feasible to deal with shares in such a company, and any monies owing by it, in a separate will, which will not be submitted for probate. The question remains, however, whether probate fees will be payable on the value of these assets or only on the value of the assets, dealt with under the other will, which is submitted for probate.

In some cases, it may be proper to transfer property into the joint names of oneself and another person, as joint owners with right of survivorship. Typically, this is done with a family home or cottage, in order that on one’s death the surviving joint owner will become the sole owner of the property. However, this should not be done unless you want the other person to really own the property; it is not a good way of dealing with it when you want to leave it to others.

Transferring property into the joint names of yourself and your spouse presents no tax problems. However, transferring it into the names of yourself and your child, or anyone else other than your spouse, can create a tax liability if the property has increased in value, since it is treated as a taxable disposition of a half-interest in the property.

Under the new Ontario rules, the term letters probate has been replaced by certificate of appointment of estate trustee with will and the term letters of administration has been replaced by certificate of appointment of estate trustee without a will.

While the savings in probate fees from probate fee planning are not enormous, they are not insignificant. If a $1 million asset is excluded from probate, the saving is $15,000.