BY: ANDREW STEWART
My father always told me: “Don’t waste money on a big funeral when I die, use it to pay my bills”. When you die, your debts must be paid first, before any money or property you leave behind is passed on to your loved ones.
Death and taxes are the only certainties in life, Benjamin Franklin said. But when I ask men and women what they know about probate and what really happens when they are gone, I realize many Canadians are very uncertain about probate, wills and what an executor does. Being a family advisor, I advise people of different ages and in different stages in their lives on some of the responsibilities and burdens that will have to be dealt with after they have passed away.
Probate happens where death and taxes meet. Probate is the court process that legally validates your will and confirms your appointed executor their authority. If you don’t have a will or your executor can’t do the job, the courts have to appoint an administrator. Let’s assume we’re talking about your own will. Your executor (the person named by you in your will, responsible for carrying out its terms) must secure the assets of your estate and will determine whether probate is needed. Even if it’s not a legal requirement, your executor may apply for probate to ensure that he or she can rely on your will as being the final version.
Without probate, your executor can hit a wall.
Imagine your executor contacts your bank, mutual fund company or pension plan provider or the land title office with a non-probated will in hand, asking them to hand over your money or register a transfer of property title. Those institutions will want proof that:
- you’ve died
- the will is valid and is the final version
- your executor is the person named in your will
- they won’t be sued if the will is contested
When you die, your executor often needs proof (requested by financial institutions, government agencies and others) that they are the person authorized to represent your estate. Probate is the process that provides court certification of this fact. There can be a cost to this and probate fees to settle your estate can be high depending on the province you live in. Probate fees charged by the Ontario government is $5 per $1000 of estate assets up to $50,000 and $15 per $1000 of estate assets over $50,000.
If you want to leave your entire estate to your spouse or common-law partner, it’s smart to insert a common disaster clause in your will. Without it, consider this scenario: If you and your spouse were to be in a fatal accident and one partner was to survive the other by only a couple of days, your assets would go through probate twice (once for your will and once for your spouse’s will). You can avoid that by having your will specify that if you and your spouse die within a short time of each other (such as within 30 days), your estate would instead go to contingent beneficiaries, your children, for instance rather than to your spouse.
A common belief is that assets jointly held by two people don’t need to go through probate if one person dies and there’s some truth to that. But if the only reason you want joint title on an asset now is so your estate can avoid probate costs later, beware. For example, you jointly own a house that is debt-free. But if your joint owner has debts that are in arrears, his or her creditors might be able to make a claim against your home. The easiest and most common way to bypass probate is to name a beneficiary for your life insurance or registered accounts such as RRSPs, registered retirement income funds (RRIFs) or tax-free savings accounts. Those assets usually pass to those beneficiaries outside the estate and don’t go through probate. It’s best to name a secondary or contingent beneficiary as well, in case your primary beneficiary dies before you do.