Probate Planning in BC: Is the juice worth the squeeze?

A lesser-known aspect of estate planning for British Columbians is “probate planning”, or taking steps to minimize the value of the assets that are governed by your Will in order to reduce the delays and costs of “probate” after death. Although strictly speaking, there is no “inheritance tax” in B.C., the province does in fact collect a “death tax” based on the value of assets in an estate as part of the probate process.

While the vast majority of British Columbians will have their estate “probated” on death, many are unfamiliar with the concept and even fewer take proactive steps to plan around it.

What is my “Estate” for Probate Purposes?

Not all assets are subject to the probate process at death. There are different ways to transfer assets to intended recipients, including outside of a Will. For example, an RRSP that designates a surviving spouse as a beneficiary or assets in an alter ego trust are not part of the estate for probate purposes.

For the purposes of this article, references to “estate” refer to only those assets that subject to the probate process on death, which are typically those assets that:

• are in a person’s sole name when they pass, and
• do not have a designated beneficiary (such as designating children on a life insurance policy).

There are nuances and exceptions to this, but these are beyond the scope of this article. For additional information on the common issues arising regarding joint assets and bare trusts, please refer to (articles links here).

What is probate and why does it matter?

Regardless of whether a person has died with or without a Will, certain assets like land, bank accounts, and vehicles cannot be transferred to the beneficiaries of an estate without someone being granted the official authority to access and manage these assets. Whether this “someone” is appointed under a will (known as an “executor”) or has volunteered to manage the estate (known as a “administrator”), this person must apply to court to obtain a “Grant” that verifies (in the case of an executor) or confers (in the case of an administrator) their authority to deal with the estate.

This court process is largely the same whether there is a Will or not, but the terminology is different:

• where there is a Will: known as the “probate process” and approves an existing, valid Will and the authority of the executor named in that Will to manage the estate. The Grant is the “Grant of Probate”
• where there is no Will: known as the “administration process” and appoints an administrator and confers the authority to manage the estate. The Grant is the “Grant of Administration”

The pain points of probate include the following:

1. all assets of the estate are subject to probate fees, currently assessed at about 1.4% (the aforementioned “death tax”), which is approximately $14,000 for every $1 million of an estate;
2. all assets of the estate (and their values) must be disclosed and become accessible to the public; and
3. applying for probate and obtaining the Grant commonly takes at least 8 to 10 months, and during this time, the assets of the estate are largely frozen.

A strategic estate plan can reduce probate fees and delays, or, in some cases, avoid the probate process altogether.

Strategizing Around Probate

Along with a Will and tools to manage incapacity, primarily a Power of Attorney & Representation Agreement, maximizing efficiencies from a probate perspective is an equally important part of an estate plan.

The crux of probate planning involves shifting assets outside of your estate. Some common examples include:

• between spouses, owning assets jointly

Joint ownership is possible for non-spouses but is more complex to take into account pitfalls around:

• • what the intention of the joint ownership is on the death of the original owner
  • triggering capital gains tax
  • risking loss of the “principal residence exemption” on a home
  • annual requirements relating to various real estate tax and income tax filing requirements
• ensuring beneficiaries and back up beneficiaries (commonly referred to as “contingent” beneficiaries) have been designated for life insurance policies and registered products like Registered Retirement Savings Plans (RRSPs/RRIFs), Tax Free Savings Accounts, and First Homes Savings Accounts
• the use of “multiple Wills” for assets like private company shares
• owning assets through a trust – especially for those who are aged 65 and over
• gifting cash or assets during your lifetime

A comprehensive plan can include any one or more of these strategies so that in some circumstances, there is no need to apply for probate at all.

Conclusion 

The cost-benefit of planning to mitigate the effects of the probate regime has narrowed in light of changes in income tax laws and the introduction of transparency-focused reporting requirements, and it is vital to review a probate management plan thoroughly and thoughtfully. However, the cost and delays of probate in B.C. remains a live issue and therefore planning to minimize the impact of probate continues to be an important consideration for any estate plan.

Probate planning is much less of a priority in jurisdictions where probate fees are based on a flat fee (e.g. Alberta) or not charged at all (e.g. Manitoba), but B.C.’s current 1.4% probate fee is among the highest in North America and, as with all rates, could be increased in future years.

Looking for Wills & Estate Planning support? Please contact Rose Shawlee or Catherine Kim of our estate planning group for assistance.

This information is current to July 15, 2024, and is not a substitute for legal or tax advice and should not be relied on as legal or tax advice.