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Jeff Green | Jul 21, 2005

Legalese July 21, 2005

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This column is not intended to provide legal advice. You should contact a lawyer to determine your legal rights and obligations.

The Truth About Probate

One of the most common questions asked of us by Executors named in a deceased persons Will is: Do I have to apply for Probate?

The next most common question is: What is Probate, anyway?

At its simplest, Probate is the recognition by the Court that the Will presented to it is, in fact, the Last Will and Testament of the deceased person. Once Letters of Probate (now renamed as Certificate of Appointment of Estate Trustee) are issued by the Court, the Executors named in the Will have the necessary proof of their authority to administer the estate.

Under a Will the Executor also known as the Estate Trustee) has the responsibility of gathering in the assets of the deceased, paying any debts, and distributing the remaining assets in accordance with the provisions of the Will. People dealing with the Executor can rely on the grant of Probate as proof of his or her authority to sell or otherwise deal with the assets of the deceased person.

Although an Executor or Estate Trustee derives his authority from his appointment in the Will, the grant of Probate or Certificate of Appointment provides greater certainty to persons and institutions dealing with the Executor. Parties dealing with an Executor where the Will has not been probated will be concerned about their liability if they transfer the deceaseds assets (such as a bank account or shares) to the Executor under that Will and someone else comes along claiming those assets under a later Will. Reliance on Letters Probate in that instance will relieve those third parties from liability if a later Will is subsequently discovered.

Consequently whether or not an Executor needs to apply for Probate will usually be determined by the nature of the assets in the estate and the complexity of the distribution scheme set out in the Will. The transfer of real estate, for instance, generally necessitates that the Will be probated and many financial institutions will also not release bank accounts over a certain dollar figure without Probate.

However, small and uncomplicated estates, not involving land, can often be administered without the trouble and expense of Probate where the degree of risk for third parties is reduced. For example, a bank where the deceased held a small account might be persuaded to release the proceeds without Probate if the Executor and beneficiaries enter into a written agreement to indemnify the bank against a claim by others that they are more entitled to the deceaseds funds.

Although obtaining Probate will always facilitate the administration of an estate and make easier the transfer of estate assets, it is not inexpensive. The cost of probating a Will can be significant. In addition to the cost of hiring a lawyer, the estate also incurs probate fees charged at the rate of $15 for every $1,000 of assets in the estate. The value of the estate must be declared on the application for Probate.

Although these fees were labeled as Court costs, the Supreme Court of Canada ruled in 1998 that they were really a form of taxation. They are now governed by the terms of the provincial Estates Administration Tax Act.

This tax is not collected unless an application is made for Probate. As a result, many people take a strong interest in arranging their affairs so that they can avoid or at least reduce the expense of Probate. Certain types of assets or ownership interests are excluded when determining the value of an estate for probate purposes because the law has recognized that these types of property pass on at death outside of the estate.

Two of the most common types of assets that pass outside of the estate and are not included in its value for probate purposes are assets such as land held in joint tenancy and life insurance policies with a named beneficiary other than the estate. The real estate passes automatically to the survivor and the life insurance, under the terms of the contract, is paid to the beneficiary. Joint bank accounts also generally pass to the surviving owner without the need for Probate.

The issue of what kind of Estate Plan is best for you is one that requires a careful examination of your affairs, usually with professional assistance. Many lawyers and financial consultants specialize in helping people arrange their financial affairs to minimize both the amount of income tax and Probate tax to be paid upon death. If you are planning to make a Will, or if you are named as an Executor in someone elses Will, consulting a lawyer knowledgeable in estates could prove to be very beneficial.