Probate is the process of getting your will approved by the courts. This process validates your will and allows your executors to distribute your assets. However, probate can often be an expensive and long process. Each province has probate fees which can end up being quite substantial on a big estate. Probate can also cause serious delays in the distribution of assets from the will because once a will is probated it becomes public record. This means that it can be contested and potentially delayed while the courts settle any disputes. The good news is that with proper planning, it is possible to minimize or even eliminate the number of assets that have to go through probate.
What You Need to Know
There are a number of planning strategies that can be used to bypass or minimize probate. Below are some common strategies to make your estate as efficient as possible.
1. Beneficiary Designation on Registered Assets
RRSP, RPP, TFSA, RRIF, LIF, and LIRA are all considered to be registered assets. This means that the CRA allows for a direct beneficiary designation. If there is a spouse, they are entitled to roll registered accounts into their own names. If there is no spouse, then the investor can name an alternative person to leave the money to that they designate directly on the investment account. Money left to a beneficiary bypasses probate and passes directly to the appointed person.
2. Designating a Beneficiary on Non-Registered Assets
Typically, non-registered assets do not allow a beneficiary designation and automatically go to your estate to be probated. Segregated funds can be used to designate a beneficiary on non-registered assets. Segregated funds are a life insurance product that are solely sold by life insurance companies. While the MER’s can be a little higher on segregated funds, they offer many of the same investment options that some mutual fund companies offer. Therefore, if non-registered money is invested in a segregated fund, they too will pass probate.
3. Trusts
Any assets left to someone in trust automatically bypass probate. There are a variety of trusts that are all used for different reasons. Trusts can be more complex than the options listed above, but they can be a very effective planning strategy that allows you to assign a trustee to manage the money. However, it’s important to note that setting up a trust can be expensive. If avoiding probate is the sole reason for the trust, then it may be prudent to add up the costs of each to see which makes more sense.
The Bottom Line
Probate costs and hold up can be minimized with proper planning and guidance from a professional. It is important to note that on registered investments and segregated funds without a named beneficiary, the assets automatically go to the estate. This means they would be subject to probate. It is a good idea to review your beneficiary designations regularly to make sure they are up to date.
