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Where there’s a will... there’s a probate!

Probate is when the Court has confirmed that a will is valid and the executor has the authority to administer the terms of the estate. The courts charge a basic fee to grant the letters probate in British Columbia together with a rate that rises to 1.4% of the value of the estate in excess of $50,000.

The probate charge applies to the total value of the estate at the time of death without deduction for debts. The only common exception is mortgage debt encumbering real estate. In this circumstance the fee is applied only to the equity in the property not the entire value.

Property that passes outside the estate is not subject to probate fees. A common example of this is property owned in "joint tenancy" where one partner dies. In this situation the property automatically cedes to the surviving partner. Of course when that partner dies, as last survivor, the property passes to his or her estate and is then subject to probate (they always get you sooner or later!).

In some circumstances it is possible to wind up an estate without probate however probate is usually necessary when there’s an interest in real estate or significant assets. If there is no will, probate is replaced by a Grant of Letters of Administration, where the court appoints an administrator. Always have a will! To die intestate (without will) means the estate’s assets will be distributed as dictated by statute only.

If you have an estate of significant value, it is wise to spend time with an estate planner. There may be ways to shelter some of your assets from probate fees and to avoid estate litigation brought on by disappointed family members. A suggestion I heard was where you have sizeable loans or lines of credit that are non-secured. By setting that loan against your property, the value of the loan is deducted from the value of the property before determining the probate fee. Regular loans are not typically deducted.

Some issues that you will likely consider will be whether putting children on the title of your property is better than having them receive the estate. The tax consequences of RRSP roll-overs verses the estate having to cash them in and pay the income tax that year. Also the possibility of a lifetime trust, "alter ego" or "joint partner" which can help keep assets out of the estate for probate purposes. Generally consideration should be given to Income tax, Property Transfer Tax, Sales Tax, and G.S.T. not to mention implementation and legal costs.

At the end of the day, being prepared is never a bad idea.

This article was written with the assistance of Lee Sawatzky, lawyer and Christine Fortin, financial planner. It is intended to prompt you to consider your estate and seek professional guidance. This article is not to be relied upon independently.