Financial Planning -> Wills and Estates -> Minimizing Probate Fees, Joint Ownership of Assets
Should You Try to Minimize Probate Fees?
Probate fees or estate taxes (if any, depending on the province) are charged by the province in which the deceased resided, if the estate goes through the probate process.
The following items are excluded in determining the value of the estate for purposes of probate:
1. assets held in joint tenancy with right of survival - when one person dies, the asset is automatically owned by the surviving joint tenant(s), as long as the joint tenants have beneficial ownership, not just legal ownership.
2. assets with named beneficiaries or successor holders, such as life insurance policies, RRSPs or TFSAs.
One caveat with having named beneficiaries for RRSPs or RRIFs: The value of the RRSP or RRIF is included in the income of the deceased annuitant for the year of death (with some exceptions), so the estate should be planned so that there will be sufficient funds available to pay the tax on this income. Taxes are not withheld by a financial institution when RRSPs or RRIFs are paid out to beneficiaries. However, the beneficiary can be held liable for the income taxes payable as a result of the RRSP or RRIF amount included in the deceased's income. See How is an RRSP or RRIF Taxed at Death? This article indicates for which beneficiaries the income tax can be deferred.
Thus, probate fees can be minimized if registered assets (including vehicles) are held in joint names with right of survival (again, if beneficial ownership has been transferred), and if insurance policies, TFSAs and RRSPs are left to named beneficiaries (successor holder for TFSA), not to the estate. It is necessary to use caution when naming beneficiaries to your RRSPs, because income tax will be payable by the estate on the market value of the RRSP at the time of death, unless the beneficiary is the spouse or common-law partner, financially dependent child or grandchild under 18 years of age, or financially dependent mentally or physically infirm child or grandchild of any age. See How are RRSPs and RRIFs taxed at death, and Death of a TFSA Holder for more information.
In some provinces, having multiple wills can reduce probate fees. One will can be prepared for the assets requiring probate, and a separate will can be prepared for the assets not requiring probate. Talk to a lawyer or notary in your province for advice on preparing multiple wills.
Multiple wills are legal in BC. Our thanks to a reader for passing on to us a Vancouver Sun article about multiple wills. Although the article refers to a "loophole", at death there would still be a deemed disposal of the assets that are not subject to probate, and these assets would be subject to capital gains taxes where applicable. The article notes "In B.C., the Business Corporations Act allows a personal representative, such as an executor, to transfer the deceased’s shares in a privately held company — a grant of probate is not necessary; a declaration of transmission, an original share certificate and the will are sufficient authority."
Regarding multiple wills in Ontario, see Multiple Wills - More than just business owners, by Justin Ecclestone, Estate and Trust Consultant with Scotia Wealth Management. It discusses how multiple wills can be useful not just for private company shares, but for other assets as well.
Transferring any asset, including real estate, into joint tenancy with someone other than a spouse has many potential problems, especially when beneficial ownership is transferred as well as legal ownership:
Joint ownership of vehicles not only avoids probate fees, but may also make the transfer of the vehicle less complicated. In BC, only the death certificate is required to transfer the vehicle to the surviving joint owner. The Insurance Corporation of BC (ICBC) has a helpful Checklist for Estate Transfers (pdf).
Some financial institutions have developed a type of account that leaves no question as to beneficial ownership and survivor rights. RBC is one of those, with their Joint - Gift of Beneficial Right of Survivorship Account (JGBRS), which can have multiple successor accountholders, and avoids probate fees.
Co-Ownership Agreement - Very Important!
When property is owned jointly with someone other than a spouse, it is wise to have a co-ownership agreement in place at the start. See the Pushor Mitchell LLP article Inheriting Property Jointly With Other Beneficiaries And The Importance of Co-Ownership Agreements.
Tax Tip: Get professional advice from a tax lawyer before transferring assets into joint tenancy!!!
When a joint tenancy (joint ownership) is created, legal ownership is transferred to the new joint tenant, and beneficial ownership may also be transferred. A "gratuitous" transfer is one where part ownership was transferred at no cost to the transferee. When a gratuitous transfer is done, it is very important to state if beneficial ownership is transferred because if it is not stated, it is likely to be presumed that only legal ownership was transferred. If beneficial ownership is transferred, the new joint owner has right of survivorship, so the asset is automatically transferred to them on the death of the other joint owner, without going through probate. If beneficial ownership is not transferred, when the other joint tenant dies, the asset becomes part of the estate and will have to go through probate and be disbursed as per the instructions in the will. Some brokerages may require a "Letter of Direction" when a transfer of funds/investments is done from an individual to a joint account. This letter would just state that the transfer is requested, from account A to account B, and should be signed by the transferor. It could also include details about whether beneficial ownership is transferred. The beneficial ownership information should not be required by the brokerage, but should be documented.
A gratuitous transfer is often done by a parent with adult children. In the case of a bank or investment accounts, it may be done so that the adult child can help manage the financial affairs of the parent. In the case of real estate, including a principal residence of the parent, there may be many reasons this is done. If a parent has more than one child or heir, and the property is transferred into joint tenancy with only one of the children or heirs, it is extremely important for the parent to put into writing the intention behind the creation of the joint account, indicating if the intention is to transfer beneficial ownership to the new joint owner, or just to have the new joint owner holding those assets temporarily, with eventual dispersal by the estate. The lack of this type of documentation has resulted in many court cases. The will should indicate whether jointly held assets that were gratuitously transferred are
A Supreme Court of Canada case, Pecore v. Pecore, deals with beneficial vs legal ownership in a joint tenancy. Paragraph 27 of the judgment states "The presumption of resulting trust is the general rule for gratuitous transfers." This means that the transferee (new joint tenant) is a legal owner on title, but the only beneficial owner is the transferor, who made the gratuitous transfer. When the beneficial owner dies, the property becomes part of the estate. The presumption of resulting trust can be challenged, and where there is sufficient evidence that the gratuitous transfer was made with the intention that the transferee should also be a beneficial owner, then the "right of survivorship" stands, and the transferee will be the owner of the entire property when the transferor dies. This was the result in the Pecore case.
See above re Joint - Gift of Beneficial Right of Survivorship Accounts (JGBRS), which take away the uncertainty of what will happen upon death.
A 2020 Ontario Superior Court case, Calmusky v. Calmusky, 2020 ONSC 1506 (CanLII), seems to have taken the above Pecore v. Pecore decision too far, and we'd be very surprised if this case is not appealed. In Calmusky, the presumption of resulting trust was also applied to a RIF with a named beneficiary, so that the RIF became part of the estate instead of going to the named beneficiary. Unresolved question: Will this mean that the RIF is included in probate? See the All About Estates analysis of this case, written by Demetre Vasilounis of Fasken. As said by the author, "The court in this decision seems to be specifically focusing on beneficiary designations outside of wills, but considering that such designations can also be made within wills, it would be a best practice, in light of this decision, to ensure that the beneficiary designation includes language indicating that the designation is not to be made in trust and is for the benefit of the beneficiary."
Things Can Go Wrong With Joint Tenancies
A BC Supreme Court Case, Petrick (Trustee) v. Petrick, 2019 BCSC 1319, is a reminder that things can go wrong with joint tenancies. The joint tenants were a mother and son, and the son transferred his interest in the property to his mother when he became financially insolvent. The court ruled in favour of the son's creditor, that the transfer was a fraudulent transfer. See the Miller Thomson analysis of this case. The court decision notes that property that is held in joint tenancy can give rise to three potential scenarios in terms of the beneficial interests of the title holders:
a) A true joint tenancy, in which the joint tenants are each owner of the whole. Each enjoys the full benefit of property ownership and the ultimate survivor will enjoy the whole title for him or herself.
b) A resulting trust, wherein only one joint tenant has any beneficial interest in the property and the other joint tenant, usually a gratuitous transferee, holds title in trust for the other and has no beneficial interest in the property.
c) A scenario which is sometimes referred to as a “gift of the right of survivorship,” wherein a joint tenant is gratuitously placed on title and has no beneficial entitlement to the property during the lifetime of the donor, but if the donee survives the donor, the donee will receive the entire property by right of survivorship. In Bergen v. Bergen, 2013 BCCA 492 at para. 37 [Bergen], Newbury J.A. described a gift of the right of survivorship in a joint account as “an immediate gift of a joint interest consisting of whatever balance exists in the account on the transferor’s death, assuming he or she dies first.”
Revised: June 10, 2021
Copyright © 2002 Boat Harbour Investments Ltd. All Rights Reserved. See Reproduction of information from TaxTips.ca