Excerpts from the Book – Preserving Wealth – written by Jack Lumsden, MBA, CFP®
Much has been written about the various strategies to avoid probate fees or the estate administration tax. The reason is simple, in Ontario, probate fees are 1.5% of the estate over $50,000. This fee is applied to assets that are transferred through the will.
However, probate may be valid for some uses, and with all strategies you must watch for unintended results.
The following excerpt from the Book – Preserving Wealth, that reviews this:
PROBATE, TRUSTS, AND ESTATE TAX MINIMIZING STRATEGIES
“This is great coffee, Sandra,” said Uncle Wayne. “I wish you could talk your Aunt Jen into buying the good stuff. She always gets coffee on sale, and it’s so weak that I end up needing a whole pot just to get my heart started most mornings. Oh well, let’s get back to work.
“I believe we were about to go over information about trusts and some methods you could use to minimize probate fees. So, Alice, has your research taken you down either of these paths yet?”
“Actually, it has,” she said with pride. “And from what I can see, there are four major categories of asset transfers, including:
- gifts, like the lump sum Aunt Lorraine is giving to Mark.
- non-probatable assets, which pass directly upon a person’s death to a beneficiary without having been designated in a will,
- probatable assets, which are transferred through a will and are, therefore, subject to probate and executor fees; and
- trusts.
“There are a few different types of trusts, and Uncle Wayne’s going to have to help me explain them, because I don’t completely understand them. However, what I do understand is that whenever possible, we’ll want to transfer assets outside of our wills so that our estates will pay the minimum amount in probate and executor fees.”
“I’ll second that,” I nodded. “Probate fees, or estate administration tax, starting January 2020 in Ontario, is 1.5% of the value of the estate over $50,000.
“Let’s not get too far ahead of ourselves,” Uncle Wayne said. “I want to go back and look at the pros and cons of each of these methods of transferring assets, starting with gifts.
But first, there can be some advantages to probate, such as:
- It can protect the executor from claims by the beneficiaries and/or third parties.
- It can offer some protection from claims against the estate, as there is a specific time frame for claims when a will is probated.
- It may be easier for estate administration by the executor.
- In some cases, it may make it easier to allocate the estate on an after-tax basis to the beneficiaries as intended in the overall estate plan.
“So, with any of the strategies, they must be reviewed carefully with your lawyer, accountant, and financial advisor to make sure it makes sense and accomplishes what you intended. You must be concerned about unintended results, which means attempting to save on probate fees that cause other problems.”
“What’s an example of unintended results?” Alice asked.
“I think I can answer that,” Sally said as she took a sip of her drink. “My lawyer friend mentioned that while you want to minimize probate and estate fees, you have to be careful of unintended circumstances, as Uncle Wayne said. For example, he has seen that some people put their homes in joint ownership with their adult children to avoid probate fees, but this can cause problems. Since the child then owns part of the home, the child’s creditors could have access to the property, and the child may also end up with two homes, and only one can be a principal residence, which could cause tax problems.”
“Very good point, Sally. This is why you have to include your lawyer and accountant when making and implementing an estate plan,” Uncle Wayne said with a smile.”
For more information you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®
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Jack Lumsden, MBA CFP® Financial Advisor, Assante Financial Management
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.
