Benjamin Franklin once said “in this world nothing can be said to be certain, except death and taxes.” However, if he knew that Probate Fees must be paid in order to obtain a Grant of Probate or Administration, he might have added “Probate Fees” to his words. Was he wrong in not including Probate Fees to one of the things that are certain in this world? This article explores whether it is possible to avoid paying Probate Fees and if not, ways to minimize Probate Fees.
What are Probate Fees?
Before determining whether Benjamin Franklin was wrong or not, we need to define what are Probate Fees and when the Fee must be paid. To put simply, Probate Fees are the fee imposed on the value of the estate of a deceased person. When a person dies, the assets and liabilities of the deceased person pass to the estate of the deceased person and if there is a Will, an executor appointed by the deceased’s Will will apply to the court for “Grant of Probate,” this process is commonly referred to as Probating a Will or Probating an Estate.
If the court is satisfied that the applicant is the person named as the executor in the Will and the Will is the last valid Will of the deceased, the court will issue what is called “Grant of Probate”, which is an official recognition by the court of the executor’s authority to deal with the assets of the estate. However, the court will not issue a “Grant of Probate” unless the estate has paid what is called “Probate Fees.”
How are Probate Fees calculated?
Currently in British Columbia, no probate fees are payable if the value of the estate does not exceed $25,000. If the value of the estate exceeds $25,000, the following amounts have to be paid as probate fees:
- 6% of the value of the estate in excess of $25,000 up to $50,000; and
- 4% of the value of the estate in excess of $50,000.
Don’t worry, we have created a Probate Fee calculator to do the math for you.
How do I avoid Probate Fees if the value of the estate Exceeds $25,000?
If the value of the estate exceeds $25,000, Probate Fees must be paid in order to obtain “a Grant of Probate” or “Grant of Administration.” However, it is possible to minimize or eliminate Probate Fees if you plan ahead. Generally, Probate Fees are payable on the value of the assets that form part of the estate of the deceased. That is, if the assets do not form part of the estate upon the death of the deceased, then Probate Fees are not payable with respect to those assets.
What are the common types of assets that do not form part of the Estate?
Assets held in joint tenancy
The most common type of asset that does not form part of the estate are assets held in joint tenancy. For example, if a house was owned by the deceased in joint tenancy with another person, then the ownership of the house will pass to the other joint tenant without forming part of the estate. As a result, no Probate Fees will be payable with respect to the value of the house.
Retirement plans
Another type of asset that does not form part of the estate are retirement plans, such as Registered Retirement Savings Plans (“RRSP”), Registered Retirement Income Funds (“RRIF”) and Tax Free Savings Accounts (“TFSA”), for which a valid beneficiary designation has been made. For example, if the deceased has made a valid beneficiary designation with respect to the deceased’s RRSP, RRIF, or TFSA, then it will pass directly to the beneficiary without forming part of the estate.
Insurance
The proceeds of a life insurance policy also do not form part of the estate unless your estate is designated as a beneficiary. Therefore, if you have a life insurance policy and designated someone other than your estate as the beneficiary, the proceeds of the policy will not be subject to Probate Fees.
Trusts
A Trust can also be used to avoid Probate Fees. A Trust is a relationship where a person holds property for the benefit of others. A Trust is created by transferring property to a trustee to manage the property held in trust for the beneficiaries. If properly constructed, Trust assets held in trust will not be subject to Probate Fees.
Gifts prior to death
The simplest way of avoiding Probate Fees is to gift your assets while you are alive rather than gifting your assets under your Will. In such a case, the gifted assets will not form part of the estate since the ownership of the assets passed when it was gifted to another person.
Conclusion
As we described above, joint tenancy, retirement plans, life insurance, trusts and gifting can be employed to either reduce or avoid Probate Fees. However, there are many pitfalls to the above methods and your Estate Planning strategy must be carefully planned and executed. If you would like to receive reliable advice on Estate Planning and learn more on how to avoid Probate Fees, please contact M.J. O’Nions. Lawyers & Mediators as we are happy to help.
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