In the dynamic and intricate world of high-net-worth family-owned enterprises, the importance of precise and…
Generally, probate fees are not a planning priority in Alberta because fees are nominal (ranging from $25 to $400). However, if an individual who lives in Alberta and has property in another province (or outside of Canada) or is planning to move to a province (or country) that imposes higher probate fees, some consideration may be given to probate fee planning.
Oftentimes individuals believe they can circumvent probate fees and taxes on death by transferring their principal residence to be jointly owned with their children, however this strategy imposes other risks such as the loss of principal residence exemption on the transferred property or another property owned by the children.
Other property, such as investment accounts or vacation properties that are transferred to joint ownership will result in a disposition at fair market value, possibly resulting in an immediate capital gains tax. In addition, specific rights should also be considered such as ownership as joint tenants or tenants in common.
Joint tenants are property held jointly with a right of survivorship passing outside the estate. There may be concerns with out-of-order deaths (where a child passes before the parent in instances where a parent added a child to the ownership as a joint tenant).
Tenants-in-common are partial ownership of the property. On the death of a tenant-in-common, the property becomes property of deceased’s estate and subject to probate.
The objective of probate planning strategies is to reduce the value of assets in the estate subject to probate or to have all assets that require probate pass outside the estate so that probate in not required at all on death. A cost benefit should be done prior to probate fee planning.
The benefits of reducing the value of the estate include privacy (probate is public), executor fee savings, legal fee savings, protection from claims of spouses and dependent relief and protection from creditors.
In conjunction with probate fee planning, Shajani can assist in determining a plan on how to pay expenses, income tax on registered plans, income tax on deemed dispositions, income tax on terminal returns, funeral and burial costs and debts owed at the time of death as well as tax implications on assets held outside of Alberta (or Canada).
Will substitutes may also be considered to allow assets to pass outside of the estate. These strategies include beneficiary designations for life insurance and registered accounts, joint property with right of survivorship, use of a corporation to deduct the value of debt and utilizing an inter vivos gift or Trust.
Other strategies to minimize probate include the use of multiple wills. This strategy isolates the assets that require probate in a separate will. The drafter of the will should ensure revocation clauses do not cancel one of the wills inadvertently and allow crossover debt clause so that assets under one will can be used to pay liabilities arising from property in the other.
Trusts may also be used to minimize probate. Alter ego and joint partner trusts are available to individuals over the age of 65 and result in no immediate tax. The trust may be settled on a rollover basis where the settlor is entitled to the net income and capital during his or her lifetime. However, there is a disposition (and tax implications) of the assets in the trust on the settlors’ death or the last of the spouses in the case of a joint spousal trust. Note you cannot transfer registered plans to this type of trust.
Family trusts can also be used to minimize probate. These trusts can be discretionary, adding flexibility where desired. There is no rollover on transfer, so a capital gain tax may be immediate. However, the family trust will be subject to a 21-year rule, potentially prolonging any subsequent deemed disposition after death of the settlor.
A corporation may also be used strategically. The transfer of property to corporation may be done on a roll over bases using s85 in exchange for shares. This results in no immediate tax. Personal use property such as a home will need to consider the shareholder benefit rules.
Shajani is well position to advise on strategies on minimizing tax and probate fees.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2022 Shajani LLP.
Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.