“Probate” is the process whereby an executor seeks a court order approving the validity of the deceased’s Will and sanctioning the executor’s authority to administer the estate. Many wrongfully believe that an executor in all circumstances is required to probate a Will. In general, the executor’s authority to administer an estate springs not from court order but rather by his or her appointment under the Will. Hence, there can be many situations in which probate is not a necessary feature.
Because of its burdens, the prudent estate planner or administrator must consider where probate may be necessary, or strongly indicated. Whether probate is sought may depend on factors such as the nature of the estate assets (and liabilities), who holds them and how the Will requires them to be distributed. Some of the instances where probate commonly is required or seen as advantageous are as follows:
o where there are doubts concerning the deceased’s testamentary capacity or whether the Will under which the executor is exercising authority is actually the deceased’s last valid Will. Perhaps the deceased has made a number of Wills over time, and it is questionable which one was the last. Perhaps the deceased was suffering from a serious illness at the time the Will was executed, and issues of competency abound. In such cases, an executor might opt to have it probated to validate authority to administer the estate.
o real property transfers. In most circumstances, a transfer of ownership of real property such as houses, cottages and land to a new owner will not be accepted for registration by a provincial land registrar unless probate has been granted. Moreover, the new owner of the property will likely require the executor to have probate before completion of the transfer.
o investment and bank accounts assets, publicly traded shares and other assets of significant monetary value. Most financial institutions and share transfer agents will not release a deceased’s investment and banking account assets, or facilitate the transfer of the deceased’s shares in publicly traded companies, to the executor without assurances and protections afforded by probate. Their reluctance is motivated by a fear of liability to third parties, in the event that estate assets are distributed to the wrong beneficiaries under a Will shown as invalid.
o liability risk-management. Executors may face liabilities if they distribute estate assets before all claims against the estate have been honoured or ascertained. Probate can help eliminate the uncertainty of potential claims by forcing parties to present them promptly. Once probate is granted, the clock begins to run on strictly enforced timelines within which certain claims must be advanced against an estate, lest they be statute-barred. Probate helps executors to understand the assets and liabilities of estates, permitting them to distribute assets to beneficiaries with more confidence.
Probate however, has its burdens. One of the chief pitfalls is financial costs. Applicants must pay a provincial estate tax levied at the rate of about $15 for every $1,000 in value of estate assets. Furthermore, there may be legal fees and disbursements incurred in the preparation and service of the court application materials. Other disadvantages include the loss of privacy (once the will is filed in the court it becomes a publicly available document), and executors’ susceptibility to enhanced scrutiny by taxing authorities with potential for penalties for errors.
Astute estate planners can develop means to help reduce or eliminate the burdens of probate. These can include but not be limited to the use of inter vivos gifts and trusts, estate freezes, transfers of assets into joint ownership (whereby the deceased’s interest does not pass through the estate, leaving the surviving owner with sole title), multiple Wills and beneficiary designations (respecting assets like life insurance policies and RRSPs). Such planning techniques though may not be suitable in certain circumstances, given the potential scope for the trigger of capital gains tax or other unintended adverse legal consequences. Consequently, estate planning geared at avoiding probate only should be undertaken with caution, and preferably with the assistance of legal and financial advisers.
(Bundgard is a lawyer with the Toronto-based law firm of Evenson Bundgard LLP.)