Probate: Can You Avoid Costly Money Mistakes?Ed Olkovich
“My father shouldn’t have made a will,” said Alice.
The statement puzzled me a bit since I had made her father’s will. Alice, her father’s executor, sat in a brown leather chair in my law office.
Alice said that she already knew everything about probate. But why was she so sure of being right? I had no choice but to ask.
“What is wrong with probate?”
Her answer was quick and to the point.
“I have heard so many horror stories from my friends. The internet tells everyone to avoid it. Probate is like being dragged into hell.”
Do you agree with Alice’s comments on probate?
I decided to write this post to dispel common probate misconceptions. You may save a ton of money for your family.
What is probate?
You are not alone if you do not understand probate.
Perhaps it is confusing because probate is both a legal process and a tax.
Let’s explain the process first.
Probate courts or estate courts certify the representative of a deceased person’s estate. They also confirm who will share in the estate. This happens if a person dies with or without a will.
Who will you choose to pay your bills, taxes and funeral fees? If you have a will, that person is your executor or trustee.
What if you have no will?
An estate or probate court must appoint a family member. That person will become an administrator or trustee without a will. They must apply to a probate judge to become an administrator.
The probate court hears any legal disputes over your estate. Others can challenge your will or the management of the estate.
What are probate taxes?
You need a brief history lesson here.
We used to have probate fees in some provinces. The Supreme Court of Canada declared them to be provincial taxes. The provinces then revised their laws to call the fees probate taxes. (Quebec does not have probate taxes.)
In Ontario, these provincial taxes are collected under the Estate Administration Tax Act, 1998 (EAT). As of January 1, 2013, the EAT was amended. New regulations are also to come into effect to further change the rules.
Ontario levies these taxes at 1.5% of the probate estate value. This calculation does not include “all assets.” It also usually excludes the value of joint assets. In British Columbia the rate is 1.4%.
Why is probate necessary?
Sometimes you do not need probate.
Married couples can arrange to transfer their assets to each other without it.
Financial institutions usually want you to obtain probate.
Imagine you have your uncle’s 2005 will. It leaves everything he has to you.
You want to run down to his bank and withdraw all of your uncle’s money.
What if your sister came into the bank the next day? She waives, in her hand, your uncle’s last will made in 2009. She shouts your uncle left everything to her.
You and the bank are now in an awkward position.
The reality is simple for the bank. It needs court confirmation to know which is your uncle’s last will.
What does probate cost?
Most jurisdictions levy a probate tax on certain – but not all – assets.
The probate process takes time. Your estate representative must pay legal fees, court filing fees and other costs.
Trying to reduce the costs of probate also costs money.
Frequently, people try to avoid probate with crazy schemes. These only get them into deeper trouble.
The best example of this is using jointly owned assets. You are better off without jointly owned assets if all you want is to avoid probate. But everyone’s situation is different. That’s why advice from an experienced estate lawyer is necessary.
What is a probate contest?
It’s true that a court can override provisions in your will. A court can do this when you ignore your spouse’s property and support rights.
What if you ignore other legal or moral claims to your money? A judge can rewrite your will to give support to financially dependent adults.
A probate court normally hears will challenges.
Can you avoid a probate contest by not making a will?
The answer is no.
Your estate still must go through the probate process. A creditor, the government or a relative can apply to administer your estate.
Without a will, your estranged nephew with a gambling problem could get the job. Your relatives could end up hiring lawyers to divvy up your money.
What if your relatives can’t agree on how to divide your money? A probate court may have to settle such disputes.
Probate can frequently eat up all of your estate assets. You don’t have to have an estate like Michael Jackson to worry about that.
Can probate courts audit executor conduct?
What if you made a will and chose the right executors? Things may go smoothly.
However, your executors could be lazy, incompetent and not receive proper advice. Your estate will face trouble. A probate or estate court can deal with executors’ misconduct.
Since executors need lawyers to defend their conduct, this will normally cost tens of thousands of dollars.
Is there a solution? Probate is the price you pay to protect your money.
Want to avoid other common money mistakes? Read Estate to the Heart. You’ll discover how your money can go straight to your loved ones.
Need help finding the right executor? Read my book Choosing Executors: Your Formula for Success.
About Edward Olkovich
Edward Olkovich (BA, LLB, TEP, C.S.) is a nationally recognized author and estate expert. He is a Toronto estate lawyer and Certified Specialist in Estates and Trusts. Edward has practiced law since 1978 and is the author of Executor Kung Fu. Visit his website, mrwills.com, for more free valuable information.
© Edward Olkovich 2013