Probate if necessary, but not necessarily probate (Part 2)

by Frank Oakes, B.A., L.L.B.

(Editor’s note: Part 1 of this article appeared in the September 2017 Glebe Report.)

A new probate regime came into effect in Ontario in 2015 that greatly affects all Ontarians. Part 1 of this article (in the September 2017 Glebe Report) discussed the legal implications of probate and various methods by which it may be avoided. I discuss three further methods of avoidance in this part.

BENEFICIARY DESIGNATIONS ON INSURANCE POLICIES AND 
FINANCIAL PLANS

Beneficiary designations are effective in avoiding probate by allowing funds to pass directly to the beneficiary outside of the estate, thereby avoiding the tax. Such a designation must be to a named individual other than the deceased or his estate and can include life insurance policies, RRSPs, RRIFs, TFSAs and pension plans. When appointing a beneficiary, you should consider also appointing a secondary beneficiary if there is any possibility of the primary beneficiary dying with you in an accident.

JOINT TENANCY WITH RIGHT 
OF SURVIVORSHIP

A person may enter into a joint tenancy with right of survivorship with a spouse with the intention that the entire legal and beneficial interest in the joint property shall pass automatically on that person’s death to the surviving spouse without any legal or other involvement. In this instance the property passes outside of the estate without probate and no tax is payable. The surviving spouse may further wish to avoid probate by entering into a joint tenancy with a child; however, while easily done, this can be an income tax and legal minefield and one must tread carefully.

MULTIPLE WILLS

Another means of avoiding probate is by entering into more than one will. A primary will can be used to dispose of assets that the agency transferring title may require to be submitted for probate to secure the protection of a proven title. Examples are real estate, publicly traded stocks, bonds and larger bank deposits registered in the name of an individual. Such assets will only pass to the heirs through the probated estate of that individual. These assets must be declared in the will and the tax paid.

In the other, or secondary will, all of the assets not required to go through probate must be listed and identified. Examples here will be most moveable items such as equipment, vehicles, boats, aircraft, machinery, tools, computers, digital assets, furniture, pictures, all household goods and shares or other interests in businesses not publicly traded. Normally, the family or other beneficiary would be content to rely on the will and the authorized representative named therein without worrying about a probate certificate. As further assurance, a legal opinion can be obtained as to the authenticity and validity of the will.

Multiple wills, although certainly not common, have been employed now for many years and as you can imagine, since they avoid probate tax, have had their legitimacy challenged by the Ontario government which, ever mindful of the interests of its subjects, commenced a court action seeking judicial approval to have all the assets of deceased persons taxed. The government’s loss was expressed in the following words of Madame Justice Greer, which have been repeated and affirmed since first spoken.

“The estate planning of having multiple wills in the form of a primary will and a secondary will which take effect on death is, in my view, simply another example of how a careful testator plans to have her or his estate pay the least possible probate tax on death. There is no legal obligation to obtain probate and, as I have noted above, limited grants are permissible. If the directors of the private companies in which the deceased owns shares or has an interest at death do not require the formal grant from the Court to deal with the transmission of the assets and are prepared to deal with the estate trustee named in the secondary will, why then should the estate have to pay probate tax on those assets?” Granovsky Estate v. Ontario (1998), 156 D.L.R. (4th) 557.

As with all financial and tax saving strategies, the benefits must outweigh the trouble and costs involved. The purpose of this article is to inform the readers of recent changes in the law of Ontario relating to probate and to acquaint them with some means they may wish to consider in the planning and management of their affairs. All procedures involve legal implications beyond the scope of this article to explain and should not be undertaken without professional legal advice to determine their suitability in individual circumstances.

Frank Oakes, B.A., L.L.B., is a retired barrister and solicitor living in the Glebe.