“…in this world nothing can be said to be certain, except death and taxes.”
We can thank Benjamin Franklin for popularising this rather depressing quip. It is hard to argue with though.
In British Columbia, these certainties occur together through a type of estate tax known as a probate fee. This probate fee is effectively about 1.4% of the value of your estate. That’s not much until you consider the value in real estate some elderly British Columbians own, which will pass through their estate. You pass away, and this probate fee of 1.4% on your estate, including property that flows through the estate, becomes payable. There are ways to avoid this though, with thoughtful planning, though you must be careful not to eliminate one problem by creating another.
One very common way to avoid probate fees on your estate is to place assets in joint tenancy. When you die, the asset flows automatically outside your estate to the surviving joint tenant. Simple solution? Perhaps. Except that recent case law has opened these transfers up to challenge, thereby potentially enhancing the risk of an estate fight.
Simply placing assets in joint names poses the risk that a court could find that you didn’t really mean to give the asset to the other joint owner. The mere transfer into joint names is insufficient to demonstrate intent and in some circumstances the court will infer that you didn’t intend to make a gift of the contents and put it to the other joint owner to prove that you did. That can be very difficult to do. Litigation can follow and the legal fees will almost certainly eclipse any probate fee.
There are other risks too. You could incur a tax liability by transferring property into joint tenancy. That tax liability may eclipse the probate fee. That tax may come in the form of capital gains, which is a tax that can not only be triggered prior to death by transfers of assets, but also after your death through the administration of your estate.
When a person dies, Canadian income tax rules deem that the property owned by that person is disposed of. Essentially, if the value of that property has increased since the date of acquisition, capital gains can be payable. So what? Let’s say you own a lakefront property, or a cabin at the ski hill. Your spouse or children that want to keep it may be left dealing with a substantial tax bill and if they want to retain the property they need to come up with the money to pay that bill.
The solution is to make a plan with an estate planner. Document your intention and explore all of the options. Perhaps a trust works best for you.
If you are the beneficiary of an estate and it seems that not all assets are flowing through that estate, then there may have been assets in joint tenancy. There may be an argument that they were not intended to be gifted. It is worth speaking to a lawyer to explore your options.