Michael Ford (post until Oct. 31/19)
Estates & Wills & Trusts

Probate avoidance and split wills: Pope

It's vital that testators hire a lawyer when attempting to avoid probate fees, Ottawa disabilities and estate planning lawyer Kenneth Pope tells AdvocateDaly.com.

Pope, principal of Kenneth C. Pope Law, explains that the fees, also known as the Estate Administration Tax (EAT), apply a 1.5 per cent levy when a deceased person’s assets require probate, which includes investments, money held in bank accounts, land and valuables owned by them at the time of death.

“It’s a paper process that normally takes between six and eight weeks, and the estate can’t be brought in or distributed until it’s done,” he says. “But if you think that 1.5 per cent of a million-dollar estate is $15,000, you can see why people want to avoid the fees if they can.

“It’s going to become more common as baby boomers age, and they wish to pass their sizable assets to heirs with minimum taxation. But it’s also the type of discussion you need to have with an experienced probate lawyer,” Pope adds.

The robust property market in the Greater Toronto Area and beyond means that the family home is often the most valuable single asset in a person’s estate, he says. As a result, many testators are keen to find a way to take their home out of the estate for the purposes of probate, Pope explains.

One possible solution is to add a child to the title, allowing them to assume ownership on the parent’s death by way of survivorship, rather than via the estate. However, Pope says lawyers typically advise against such a move, noting there can be problems when the parent intended the property to be held for the benefit of other beneficiaries in addition to the person on title, or if other children object to the arrangement.

“The person on title also becomes a true owner of the home, which will result in capital gains liabilities, as well as potential liability in the event of a divorce, when matrimonial claims may be made against the estate,” he adds.

Still, Pope says some homeowners may be able to take advantage of the “first dealing after conversion” exemption to the EAT, which applies in cases where the home was purchased years before under the land registry system and subsequently transferred to the land titles system, as long as the property has not changed hands since, and is the only asset requiring probate.  

“People should be informed about it, but because it’s an old technique, often you’ll find only older lawyers will remember the change or know about it,” he says.

In addition, Pope says split wills may be an appropriate tool for use by certain individuals, depending on the nature of their assets. The technique involves a testator executing two wills, limiting the EAT’s application to the assets requiring probate, which are all placed in the primary will. The secondary will is prepared to isolate the assets that do not require probate, including cash, jewelry and shares in private corporations, Pope says.

"This can include a principal residence or cottage when the value has soared over time and the one-time exemption applies," he says.

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