Probate can be a costly and time-consuming process, delaying the distribution of assets to beneficiaries. While probate is often necessary, there are legal strategies to minimize or entirely avoid it, reducing fees and administrative burdens. Here’s what you need to know about avoiding probate in Canada.
Why Avoid Probate?
Probate is the legal process of validating a will and granting the executor authority to distribute an estate. Avoiding probate offers several benefits:
- Cost Savings: Probate fees (also called estate administration taxes) can range from 0.5% to 1.5% of the estate’s value, depending on the province.
- Faster Asset Distribution: Avoiding probate prevents delays that can extend the estate settlement timeline.
- Privacy Protection: Probate records are public, meaning anyone can access details about the deceased’s assets and beneficiaries.
Strategies to Avoid Probate
1. Joint Ownership with Right of Survivorship
Holding assets jointly with another person ensures they pass directly to the surviving owner upon death, bypassing probate. This applies to:
- Real Estate: Owning a home as joint tenants with right of survivorship allows the property to pass automatically to the surviving owner.
- Bank Accounts: Joint bank accounts enable direct access to funds without probate delays.
- Investment Accounts: Some financial institutions offer joint investment accounts with survivorship rights.
2. Name Beneficiaries on Financial Accounts
Certain financial assets allow you to designate beneficiaries, allowing them to bypass probate:
- Registered Retirement Savings Plans (RRSPs)
- Registered Retirement Income Funds (RRIFs)
- Tax-Free Savings Accounts (TFSAs)
- Life Insurance Policies
By naming a spouse, child, or other beneficiaries, these assets transfer directly without being part of the estate.
3. Use Trusts to Hold Assets
Setting up a trust allows assets to be transferred outside of probate while retaining control over distribution.
- Living Trusts: Assets placed in a trust avoid probate as they are legally owned by the trust rather than the individual.
- Alter Ego or Joint Partner Trusts: These are commonly used by individuals over 65 to transfer assets tax-efficiently and avoid probate.
Learn more about setting up trusts in Canada.
4. Gifting Assets Before Death
Giving assets to beneficiaries while you are alive reduces the size of the estate and the assets subject to probate. Consider:
- Transferring property or cash gifts to heirs while alive.
- Giving annual tax-free gifts within CRA limits to minimize tax implications.
However, gifting assets may trigger capital gains tax, so consult a tax advisor before making large transfers.
5. Hold Private Company Shares
If you own shares in a private corporation, these can pass outside of probate through a corporate succession plan or a secondary will, reducing probate fees.
6. Set Up Multiple Wills (Available in Some Provinces)
In certain provinces, such as Ontario and British Columbia, individuals can create multiple wills to separate assets that require probate from those that do not. For example:
- A primary will can include real estate and public investments.
- A secondary will can cover business assets, private shares, or personal items, which may not require probate.
When Probate Cannot Be Avoided
Despite best efforts, some estates still require probate, especially when:
- The deceased owned real estate in sole ownership.
- There are disputes among heirs regarding asset distribution.
- Banks or financial institutions require probate before releasing funds.
- The deceased did not leave a will (intestate estates typically require probate by default).
Avoiding probate can save time, money, and stress for beneficiaries, but it requires careful planning. Strategies such as joint ownership, beneficiary designations, trusts, and gifting can help reduce probate exposure. Consulting an estate lawyer or financial planner ensures your estate plan aligns with legal and tax regulations while maximizing benefits for your heirs.
