Why avoiding probate at all costs can cost you
When you die, one of the duties of the Executor or legal representative is to present your last Will to a provincial court in order to go through the probate process. The Court will charge a percentage of the assets and once the Executor(s) receive probate, cash out the assets(or transfer ownership of some of the assets), obtain the Clearance Certficate from the CRA, they are free to distribute the proceeds of the Estate as directed in your Will.
Some clients will go to extraordinary lengths to avoid these government probate fees - sometimes even to their own detriment.
Just be aware though, that in most instances, legal fees are usually far more than than the probate fee.
In Ontario, probate fees are 1/2 of 1% on the first $50,000 and 1 and 1/2 % on the balance.
For instance, probate fees on a $250,000 estate would be approximately $3,250.
Although joint ownership can be a useful way to avoid probate fees, difficulties arrive when the joint owner, typically a spouse, passes away.
The temptation may be to change the ownership of your investments to the adult children. However there could be serious consequences, capital gains for instance, and estate planning consequences if you do so.
Many investors may not realize that joint ownership assets are not included in your Will. If you add an adult child as a co-owner on an investment, you are legally giving away one-half of your investment. Should a son or daughter divorce or get into financial difficulty, a creditor or former son-in-law or daughter-in-law can lay claim to your investment! Recently joint ownership issues have been contested and some high profile cases have ended up before the Supreme Court of Canada.
When you are thinking about writing or updating a Will it is important to realize that any property or investments registered jointly falls outside the Will and is not included in the Estate.
Keeping all of your assets in just your name alone could allow for the most direct, problem free transfer of your wealth to the beneficiaries that you have designated in your Will.
After your death, it is your Will that tells your Executor(s) how to distribute your estate to your beneficiaries. If joint assets are not included in your Will and are not part of your estate, then some of your beneficiaries may, inadvertently, be cut out of the Will, their share may be reduced or portions may be unequal if there are multiple beneficiaries.
Sometimes the best strategy is the simplest. Probate fees are not as large as you might think. Do not make any changes in the ownership of your existing assets or investments without seeking professional legal advice first.
