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Avoid Probate Using Joint Ownership

Should you use Joint Ownership to Avoid Probate Fees?

The probate process is a court application seeking an order from the Supreme Court of B.C. which confirms the legality of your Will, recognizes the executor in your Will as the person legally responsible to administer your estate, and requires the executor to administer and distribute your estate according to your Will. The court proceeding also provides a vehicle for the court to review and approve any aspects of your estate administration if an issue arises.

Probate is required if there is a dispute regarding the legality of your Will, if there is a dispute or legal issue between your executor and the beneficiaries of your estate, if there is a dispute between your beneficiaries regarding the estate, or if your estate includes property that can’t be transferred or sold without a probate order (such as land, a significant bank or investment account, or a motor vehicle if owned as part of a substantial estate). A probate order is required because the registry or financial institution will not allow your executor to deal with this kind of property without it.

The probate fee is essentially a filing fee (or estate tax) paid to the provincial government in exchange for receiving a probate order from the Supreme Court of B.C. In B.C., probate fees are based on the gross fair market value of an estate (i.e. without deduction for estate debt) as follows:

Gross Value of Estate:* Probate Fee:
$0.00 – $10,000.00: $0.00 (nil)
$10,000.01 – $25,000.00: $200.00 (flat fee)
$25,000.01 – $50,000.00: $6.00 per $1,000.00 over and above the flat fee
$50,000.01 and over: $14.00 per $1,000.00 over and above the previous fee

*the gross value of the estate will be rounded up to the next $1,000.00.

For example, if the gross fair market value of your estate is $837,431.00 (debts are not taken into consideration to reduce the gross value of the estate for probate purposes), the probate fee for your estate will be:

Gross Value of Estate:* Probate Fee:
$0.00 – $10,000.00: $0.00(nil)
$10,000.01 – $25,000.00: $200.00 (flat fee)
$25,000.01 – $50,000.00: $150.00 (25 x $6)
$50,000.01 and over: $11,032.00 (788 x $14)
TOTAL PROBATE FEE PAYABLE: $11,382.00

If your executor needs to engage the services of an estate lawyer to make the probate application, then legal expenses will also be incurred, which will vary depending on the circumstances.

For substantial estates, it can be very worthwhile (for your beneficiaries at least) to avoid the probate process and payment of probate fees, if possible. You can budget roughly $18,000.00 to $20,000.00 for probate and legal fees per $1 million of gross estate value that goes through an uncontested probate or estate administration process.

Income Tax Considerations

You can avoid probate fees on assets that are owned jointly with someone as the asset will pass to them on your death, as the surviving joint owner, and the assets will not pass through your Estate. However, if the present market value of the asset you are transferring to joint ownership exceeds the original cost of the asset, then half of the capital gain on such asset will (or should be) be reported by you on your income tax return. Similarly, any capital loss will also have to be reported. Exceptions to this include if the receiving joint owner is your spouse, if the asset transferred does not have a capital gain (i.e. a bank account), or you are transferring an interest in real property that has the benefit of a tax exemption, like a principal residence or family farm property (although the other joint owner may not enjoy such an exemption moving forward).

Misapplied Joint Ownership

If you want to add a new joint owner so they can access your bank account and help you manage your money and pay your bills, and to also avoid probate fees, but on the condition that the joint owner must distribute the account balance according to your wishes, then you are not transferring a true legal and beneficial joint interest in the account. True joint ownership means that upon your death, the surviving joint owner receives full legal and beneficial ownership of the assets as the surviving joint owner. The obligation to distribute the property after your death is inconsistent with the right of survivorship and therefore is not true joint ownership; however, it can help avoid probate fees on that asset. If you are using joint ownership simply to have someone help manage your finances, then perhaps another incapacity planning tool, like a Power of Attorney, is better suited for that purpose.

Risks — Loss of Ownership and Control

Other risk factors that exist when you transfer joint ownership of property to someone include the following:

  1. Any interest in a jointly held property can be encumbered, and possibly seized and/or sold by creditor(s) or a Trustee in Bankruptcy of either joint owner. A trust agreement proving that the other joint owner is really only holding their interest in the asset for you and is not a true beneficial joint owner, will certainly help prevent this, but it will also negate the automatic survivorship rights.
  2. Joint property may be divided upon the breakdown of your relationship with the other joint owner.
  3. With land, joint ownership can also be severed or terminated by any one joint owner, without notice to the other joint owner. This leaves each joint owner as a sole owner of half the property and terminates the automatic survivorship rights.
  4. You no longer own the asset solely in your name so the other owner has access to it, can further transfer or encumber it, or can dispose of it, sometimes without notice to you.
  5. If you later discover that you need all of the property to pay for your own living or elder care expenses, you may not get it back.
  6. If you want your surviving joint owner to distribute the asset in any particular way after your death (ignoring the fact this may actually negate the intention to transfer a joint interest in the asset), there is always a risk that your surviving joint owner will not do so and may just keep it all.
  7. After transferring a joint interest in certain types of property to someone, like land, you may become unable to make decisions relating to that property without involving the other joint owner, and you may not always get their cooperation to carry out your decision.
  8. What happens if the other owner dies before you? Will your estate planning goals be upset if you survive the other joint owner and the joint property ends up back in your estate?

Review and Balance Your Objectives

Joint ownership can be useful for incapacity and estate planning purposes, provided it is actually the best solution to achieve your objectives. It is always best to seek the advice of a lawyer experienced with estate and incapacity planning to assess your specific situation before you act. It is usually far easier and less expensive to plan ahead than to try and unwind a bad or unanticipated situation, which may not even be possible to undo. For example, avoiding triggering a taxable capital gain which can be taxed at as much as 22% makes little sense to avoid a 1.4 % probate fee.

There are other estate planning tools to avoid probate fees, including gifting property while alive, placing property in a trust, or using dual Wills to separate the assets that need probate to be dealt with from the rest of your assets. There are unique advantages and disadvantages to each strategy. These strategies work because you do not personally own the asset when you die or the asset is owned and controlled in a manner which does not require a probate order to deal with it.

If have any further questions about avoiding probate fees with your estate planning in general, please contact us.