# How to avoid probate tax?



## jargey3000 (Jan 25, 2011)

Being somewhat of a cheapskate, is there a simple answer to this question?
I'd appreciate some input from the forum on this subject.


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## Beaver101 (Nov 14, 2011)

^ With no disrespect but shouldn't that "solid investment friend" of yours who works in the estate trust division be giving you such advice instead of "stock tips"?


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## Just a Guy (Mar 27, 2012)

The simplest answer to this is to bring the value of the estate as close to zero as you can. The easiest way to do this is to give all your stuff away before you die. The problem with that is, if you give it all away, you may not have anything when you still need it. I've known a few people who tried to do this, gave their family members everything with the understanding that they'd be taken care of only to find their beloved family took the money and ran. Of course, on balance I've known people who pulled it off too.


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## Userkare (Nov 17, 2014)

You can't really avoid probate tax if you live in a jurisdiction that levies it; so one option is to move.

For Ont:

To reduce the tax, one could put money in joint accounts, where the survivor is clearly indicated to receive the funds, and not just acting as an agent to take care of paying bills.

Same for property; if the property is co-owned with right of survivorship it's not included. Also things that pass out of the estate like RRSPs, TFSA, Life Insurance, etc where there is a named beneficiary.

If the estate is complex, consult a lawyer/accountant.


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## OnlyMyOpinion (Sep 1, 2013)

I gree with JAG - don't hold assets in excess of what you need, give them away now if appropriate.
Also, simplify your estate holdings as much as possible, declutter your personal stuff, and have your 'papers' in order (valid will, accounts, passwords, instructions to executor). 
Wouldn't you sooner have your family blessing your organization than cursing the mess you left once you're gne? 

In addition, make sure your beneficiaries are current for life insurance/pensions/RRSP's/RRIF's/TSFA's (and successor holder for TSFA). I was shocked a year ago when we checked our long-standing accounts and found some missing data.

Use joint accounts/ownership when justified (establishing these outside of couples has risks you can read about).

Finally, don't let the cost of probate cause you to do dumb things. It is not that big a deal.


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## AltaRed (Jun 8, 2009)

OnlyMyOpinion said:


> Use joint accounts/ownership when justified (establishing these outside of couples has risks you can read about).
> 
> Finally, don't let the cost of probate cause you to do dumb things.


Extremely valid points. Inappropriate use of joint (JTWROS) accounts is one of the most severe mistakes people make. They let a small tax tail wag the dog and forget about all the liabilities that come with joint account ownership. Amongst them being vulnerable to creditors (including court judgements), separation and divorce settlements, and simply absconding with the funds. Horror stories abound everywhere.


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## ian (Jun 18, 2016)

You absolutely can avoid a great deal of Probate tax in those jurisdictions that have it simply by organizing your affairs properly.

The key is keep assets from landing in the 'estate' pool after death. That means having assets in joint names. If you pass, the asset is still in the name of the joint holder. It does not have to be included in the Probate Process (at least not in BC) and it is thus not subject to tax.

Prior to my mother's passing we ensured that all assets were either transferred to a family member or held jointly. We had to do Probate because of one term deposit that was solely in her name. We had overlooked it. I did the Probate process. It was straighforward. I bought a kit that explained the steps and included the necessary forms. Not difficult at all in our case.

Clearly we did not do silly things when setting this up. We ensured all assets were protected and we eventually going to where my mother wanted them to go. One surprise was that her bank sealed her safe deposit box. They asked for a copy of will and asked that both my sister and I attend together, open the box, and inventory the contents. I have been told that some people who have access to accounts have transferred monies in between the time of death and presentation of the death certificate to the bank in order to avoid having current balances fall under the the Probate process.


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## Mukhang pera (Feb 26, 2016)

Another device that can be employed is a revocable trust. But even that is not a sure thing. Below is a link to the sad case of a guy who conveyed his Vancouver condo to his 20-year-old daughter in 1999 and arranged for her to hold it in trust. Part of a nefarious scheme to appear as a non-resident of Canada for tax purposes. In 2016 he returns from Mexico and wants to have his condo back. Daughter tells him to take a hike:

http://www.courts.gov.bc.ca/jdb-txt/sc/17/13/2017BCSC1392.htm

Maybe when it gets to trial the daughter will plead ex _turpi causa non oritur actio_. Sorry dad.


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## OnlyMyOpinion (Sep 1, 2013)

Thanks Mukhang, very interesting reading.
Of course that could never happen with my daughter :culpability::apologetic: (could it?)


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## humble_pie (Jun 7, 2009)

Mukhang pera said:


> Another device that can be employed is a revocable trust. But even that is not a sure thing. Below is a link to the sad case of a guy who conveyed his Vancouver condo to his 20-year-old daughter in 1999 and arranged for her to hold it in trust. Part of a nefarious scheme to appear as a non-resident of Canada for tax purposes. In 2016 he returns from Mexico and wants to have his condo back. Daughter tells him to take a hike:
> 
> http://www.courts.gov.bc.ca/jdb-txt/sc/17/13/2017BCSC1392.htm
> 
> Maybe when it gets to trial the daughter will plead ex _turpi causa non oritur actio_. Sorry dad.




King Lear. Let's not get too happy with the gifts.


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## Just a Guy (Mar 27, 2012)

I've also heard that you can set up a life insurance policy to pay the taxes and costs...not sure how it works exactly (I'm not a life insurance salesman), it's often set up in companies or for people with high illiquid assets. 

It reminds me that I should probably revisit that portion and make sure it's up to date.


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## AltaRed (Jun 8, 2009)

OnlyMyOpinion said:


> Thanks Mukhang, very interesting reading.
> Of course that could never happen with my daughter :culpability::apologetic: (could it?)


You would be surprised how often family members will rip off other family members. It happens more often than one might think, and especially with more elderly people. The heirs essentially take their money early. Fraud within family is a major cause of elderly abuse. I have seen cases pretty close to home turn ugly.

And that is not counting those situations where a joint owner gets him/herself into a mess with creditors, or a marital breakdown. Can you imagine what it would feel like when a divorcing/separating ex claims 50% of the entire value of your $1 million portfolio? It IS a legitimate grab since the joint account by definition is undivided interest.

Financial institutions are often clueless in these matters. Real life story: I remember when my bro and I were setting up a DIY discount brokerage account for my elderly mother's entire net worth (excluding her house). The brokerage person recommened a JTWROS account between the 3 of us as a means to ultimately avoid probate. I asked her at the time.....Would you keep my mother whole if my bro or I cleaned out the account and went to Mexico? How about my wife who just might divorce me and seek 50% of the asset? She looked at me in glazed over eyes and my bro' was kind of speeechless. And the brokerage person was stupid in the first place. Probate fees in AB are capped (I think) at about $525 today albeit we paid a fair sum in legal fees for the probate application.


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## Just a Guy (Mar 27, 2012)

I filed probate on my own a couple of times, it's not hard to do for most cases. Not something you would always need a lawyer for. May be worth looking into before spending a small fortune on lawyers.


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## Retired Peasant (Apr 22, 2013)

People get so hung up on probate fees. It doesn't necessarily amount to much - calculate it for your province. We found, by far, the highest expense in settling an estate was not probate, nor, income tax, nor legal fees - it was real estate commission - which was more than all the other things combined.


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## andrewf (Mar 1, 2010)

^Agreed. It seems people will bend over backwards or use expensive structures to avoid a fairly small tax. We're talking under $15k on a $1 million estate. Some people pay this in mutual fund MERs every single year.


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## OhGreatGuru (May 24, 2009)

_*How to avoid probate tax?*_

Arrange your affairs so as to die broke.


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## fatcat (Nov 11, 2009)

OnlyMyOpinion said:


> I gree with JAG - don't hold assets in excess of what you need, give them away now if appropriate.
> Also, simplify your estate holdings as much as possible, declutter your personal stuff, and have your 'papers' in order (valid will, accounts, passwords, instructions to executor).
> Wouldn't you sooner have your family blessing your organization than cursing the mess you left once you're gne?
> 
> ...


this is it here ... trying to avoid probate beyond simple obvious manuevers like joint accounts where appropriate and giving gifts while alive and so on is really a dumb idea ... a lot of money has been lost and time wasted by fancy probate avoidance schemes, it isn’t much, just suck it up and pay it

the real problem is the entire estate process which is much too expensive and much, much to long and biased so badly towards people who simply don’t have their shite together ... it badly needs reform


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## Userkare (Nov 17, 2014)

Retired Peasant said:


> People get so hung up on probate fees. It doesn't necessarily amount to much - calculate it for your province. We found, by far, the highest expense in settling an estate was not probate, nor, income tax, nor legal fees - it was real estate commission - which was more than all the other things combined.


It's a psychological thing; it just feels icky. At a time when you're grieving the loss of a loved one and are consoled only by the thought of the gift that they have bequeathed to you - there's your government with their hand out for their 'cut'. Bad enough you have to be wary of unscrupulous funeral services trying to rip you off when you're vulnerable.

I can see that there should be some fee associated with the court processing the paperwork for estate administration, but do they have to do any more for an estate worth $500K than they do for one worth $500M? They'll get their taxes as capital gains if estate assets are sold, but why do they need their tribute to be paid when a child moves back into the home where they were born and grew up? A simple flat fee would be much easier to accept rather than a percentage of the net estate value.

So $15K is not a lot of money? This is the CMF forum, so maybe for its members that might be true, but I can think of several people I know that couldn't come up with that amount in an emergency without needing to borrow money; even then, they may already be at their credit limit and have to turn to fringe lenders. The court will hear a petition to defer payment of the estate tax, but I don't know what they would accept as 'hardship'. The tax is based on the FMV of the assets, so in the case where the only estate asset is a house that the beneficiary wants to live in, that money is not recovered by the sale of said house.

I agree with fatcat ^^ the whole process is broken. If the deceased did not leave a will, and had very little liquid cash in the bank ( lived cheque to cheque ), the next of kin are on the hook for paying the EAT and the household bills while they wait months for the letters of administration. The government is in no hurry; they got their money up-front. Maybe there should at least be a mechanism where the bank can release RRSP/RRIF/TFSA, funds (if any) to pay the deceased's expenses. 

Just my $.02


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## AltaRed (Jun 8, 2009)

Firstly, why are you hung up on $15k? That would be probate on a circa $1 million estate in a few provinces. Maybe you should be looking at http://www.taxtips.ca/willsandestates/probatefees.htm to see just how little probate fees are in most provinces. ON is the worst (1.5%) and BC is next (1.4%). Others are well below 1%. Vote with your feet if this an obsessive irritant. All provinces have provisions for low value estates. Probate fees really are a drop in the bucket....period!

Estates are not that difficult to deal with. In most cases, there is at least a joint banking account or two so that surviving spouses have access to funds while the estate is processed. In the cases where there is not a joint survivior, banks wil pay the bills from the deceased's account on instructions (presentation of bills) from the Executor. If people have their act together, they would have already had beneficiaries in place for RRSPs and TFSAs which pass outside Probate anyway and are disbursed once the Executor agrees that monies do not need to be withheld due to CRA (in marginally solvent, or insolvent, estates). The system does work albeit marginally solvent, or insolvent, estates are the most difficult to deal with. That is not the fault of the State.

We all know that estate fees are a way for provinces to grab money but at least we do not have federally imposed inheritance taxes like exists elsewhere. Be thankful for a relatively compassionate system.


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## Userkare (Nov 17, 2014)

AltaRed said:


> We all know that estate fees are a way for provinces to grab money but at least we do not have federally imposed inheritance taxes like exists elsewhere. Be thankful for a relatively compassionate system.


I feel so much better now, thanks. :calm:


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## ian (Jun 18, 2016)

I really did not find the Probate process itself to be a big deal. Just paperwork that is quite straightforward as long as there is a will and the affairs are generally in order. We did not even use a lawyer to have my father's name removed from the property when he passed. We simply went down to the land titles office, presented the death certificate, filled out a form, and we were back on the street 15 minutes later. Exactly what a law office clerk would have done....but without the professional fees. 

Don't be frightened about the Probate process. Just take one form at a time. Other than filling out a few forms we only had to do an electronic search of the Province's data base to ensure that there were no other copies of the will. Then we had to send copies of ht will to each beneficiary and also attest to that on a notorized form.


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## twa2w (Mar 5, 2016)

Agree with AR. 
A funeral can cost 15 grand.
Better to look at reducing things like capital gains tax, real estate fees, etc than worrying about a few $ in probate fees.
On many smaller estates, the legal and accounting fees can easily exceed any probate costs.
Many small estates can actually be settled without probate.
If a senior has a house joint with spouse, an rsp with a beneficiary, and a 35,000 sole name bank account, probate is not usually necessary if the will is up to date and clear.
Far better to spend some money on ensuring your affairs are in order, ie proper beneficiaries, joint where it makes sense, proper poa, pd, and properly written will. The will should be set up for most efficient transfer of assets.

I was always amazed at how many people thought they had beneficiaries on rsp, tfsa etc and did not or they were no longer who they wanted. Also at how few people had a current will.

Especially important to properly plan things with second marriages, commonlaw, business owners etc.


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## Mukhang pera (Feb 26, 2016)

Just a Guy said:


> The simplest answer to this is to bring the value of the estate as close to zero as you can.


Maybe simpler just not to die. Problem solved.


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## twa2w (Mar 5, 2016)

Mukhang pera said:


> Maybe simpler just not to die. Problem solved.


That is what I plan on. So far so good


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## Mukhang pera (Feb 26, 2016)

twa2w said:


> So far so good



Excellent! Keep it goin'.


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## ian (Jun 18, 2016)

Prior to moving to Alberta we went through all of our assets to ensure that in the event that one of us died, all assets would be joint so as to avoid Probate and/or Probate tax. My employer's HR dept sent out memos from time to time reminding employees to consider this for group RRSP's, stock plan, and stock option plan. So we did. Then we did the same for my late mother's assets. I think Probate tax is a terrible rip off. Tax on assets that have been acquired with after tax dollars. Don't mind the Gov't charging a Probate fee to cover the paperwork, examination, and discharge. This is a reasonable user pay charge.


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## Jaberwock (Aug 22, 2012)

Probate tax is too small to even worry about.

If the beneficiary of the estate is in a high tax bracket, and the estate includes dividend paying investments, his/her best option is to leave the funds in the estate for a year or two. The estate can earn about $40k in dividends without paying tax, the savings will more than compensate for any probate fees.


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## ian (Jun 18, 2016)

It is certainly worth avoiding Probate tax if you can. Who wants to pay an extra 5, 10, 20K in tax if it is not necessary. And this is after tax income for the beneficiaries.


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## humble_pie (Jun 7, 2009)

Jaberwock said:


> Probate tax is too small to even worry about.
> 
> If the beneficiary of the estate is in a high tax bracket, and the estate includes dividend paying investments, his/her best option is to leave the funds in the estate for a year or two. The estate can earn about $40k in dividends without paying tax, the savings will more than compensate for any probate fees.




wondering how an estate can earn specifically $40,000 in dividends without paying tax ... the only exempt dividends i know of are "rights and things" which meant - in the estate i worked - dividends declared but not yet paid. IE declared while the deceased was still alive but not paid to the deceased, therefore paid into the estate on the payable date. 

the time frame was strictly limited & the dividends amounted to a piffle in tax saving. There were only about 3 or 4 of them.

but there might be something else that permits large amounts such as $40k in dividends to accumulate tax-free?


.


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## AltaRed (Jun 8, 2009)

I don't know where that comes from either. The progressive personal tax rate schedules are gone (from Trust returns) starting 2016 (with exception of GRE returns which I've not studied) and there are no personal deductions, i.e. there is no 'person' in a trust return.


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