Understanding joint ownership and probate for an estate plan
By ATB Wealth 9 March 2020 3 min read
For most people, a comprehensive estate plan will include three documents: a will, an Enduring Power of Attorney, and a Personal Directive. Beyond that, having a clear understanding of how joint ownership works and the different probate taxes that might apply to an estate, will help you to create a truly effective estate plan.
Does joint ownership solve the need for estate planning?
The simple answer is maybe, maybe not. For many married couples with straightforward estates, joint ownership of all the assets, with rights of survivorship, certainly makes the transfer of ownership to the surviving spouse a fairly easy and uncomplicated process. Add in the direct beneficiary designations in the deceased spouse’s RRSPs, RRIFs, TFSAs, LIRAs, pensions, and/or life insurance policies, and once again, it’s a fairly easy and uncomplicated process. No estate, no probate, no lawyers - voila! Could it get any better? Unfortunately, this is where people often get the idea that the estate administration process is fast and easy. Remember, that’s only the case for the first spouse to die, and only when the assets at issue are simple and straightforward. When the surviving spouse dies, matters invariably become more complicated, although not painfully so if there is a plan. Probate will almost always be required, but probate costs in Alberta are minimal, especially compared to other provinces.
In an effort to avoid probate, some people want to make the surviving spouse’s assets joint with the next generation. This is where complications can arise, especially when there is more than one child, and can result in some unintended and unexpected consequences. Before changing the nature of the ownership, a full exploration of all the pros and cons needs to take place.
What exactly is probate?
The negative connotation around the word “probate” is one of the more enduring themes to come up in any estate planning discussion. Simply put, probate is the legal process through which the deceased’s will is validated, the legal entity of their estate is created, and the executor is granted authority to deal with the estate assets (which was originally given through their appointment in the will). Because the Grant of Probate is a legal document issued by the Court that both validates the will and recognizes the authority of the executor to deal with the estate assets, financial institutions and other entities generally require a certified copy of the Grant prior to releasing the assets they hold to the executor, or allowing the executor to make decisions regarding them. Until the Grant of Probate is issued, the deceased’s assets exist in a sort of legal limbo – they’re there, but the executor has no actual authority over them yet.
In Alberta, there is a general misconception about Probate fees which can result in poor estate planning and potentially some unintended consequences. In most provincial jurisdictions and throughout the United States, Probate fees(or more properly, probate “taxes”) are levied based on the value of the assets in the estate. In British Columbia (BC), for example, probate fees are levied at a rate of essentially 1.4% of the gross estate value, meaning that if you had a $5,000,000 estate, your estate would pay to the BC Court about $70,000 in probate fees. In Alberta, the probate fee ceiling is $525, which is why we don’t often see probate fee avoidance planning here.
It is worth noting, however, that Alberta’s probate is generally only recognized Alberta and those assets passing outside of the estate (such as a life insurance policy payable to a spouse or a TFSA that transfers via beneficiary designation) do not require probate. Assets situated in other jurisdictions are subject to the probate laws and rates of those jurisdictions. For example, if you had a $1,000,000 vacation property in BC, your estate would have to incur about $14,000 in probate fees related to that property and a separate application for Probate would be required to address the assets in Alberta.
An effective estate plan will help protect you and your loved ones.
Estate planning is not just for people who are older or wealthy. It applies to everyone, and the sooner you start working on your estate plan, the better off you will be with protecting your legacy.
This document has been prepared by ATB Wealth. ATB Investment Management Inc., ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund) and ATB Insurance Advisors Inc. are wholly owned subsidiaries of ATB Financial and operate under the trade name ATB Wealth. ATB Financial is a registered trade name/trademark of Alberta Treasury Branches.
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