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How can I minimize the need for estate probate?

There are a few tactics whereby you can reduce the need for an estate to be probated by the government:

• Defer possible probate by holding assets jointly. Probate fees may be charged when that asset is transferred later through the will of the second spouse.
• Establish a person as a beneficiary on your life insurance policies independent of the estate. This way, all monies pass to the heirs tax-free. If the estate needs probating, this portion of the assets will not be included in the estate, as the death benefit will flow directly to the heirs circumventing scrutiny. Life insurance strategies are excellent financial tools to circumvent probate on larger wealth transfers to heirs. Family wealth can be positioned to pass through life insurance policies, delivering tax-free benefits without probate. Any tax due on policy investments will be taxed to the estate of the deceased policy owner. This method has frequently been used to transfer inter-generational estate wealth in the millions. Your advisor can keep you up to date on potential taxes in the estate.
• Name your beneficiaries on your registered investments such as RRSPs and RRIFs. Insurance products may allow you to side-step probate in this way. To protect themselves, banks and trust companies will probably require probate or a letter of indemnity from the estate’s lawyer if the assets are significant. If your spouse is your beneficiary, consider a secondary beneficiary should your spouse die at the same time you do.
• Consider setting up a spousal testamentary trust in your will to avoid double probate. When the second spouse dies, the assets can be distributed via the trust directives as opposed to a will.
• With your spouse, set up mutually-owned property as ‘joint tenants with rights of survivorship’ to transfer these assets automatically outside of the will.

Once a will has been probated paid the estate administrative tax (EAT), the executor can start transferring assets as directed by the will. Some assets can be transferred easily within a short period of time. Others have to wait until the estate expenses have been paid, including any final income taxes due to Canada Revenue Agency (CRA), after which they will issue a tax clearance certificate.

Mortgage planning to fit your financial strategy

As part of your overall financial strategy, consider your mortgage strategies to access financing, reduce risk, and protect your real estate investments.

A good mortgage plan helps you keep moving forward regardless of market volatility and allows you to weigh capital gains versus losses in your favour. When dealing with your largest single asset class, you need to prepare for the worst possible situations, such as family illness, job loss, or increasing interest rates.

Look at probable contingencies and ask:

  • Can I pay for the mortgage if other unexpected expenses arise?
  • Could I end up needing to sell my residence or investment property or cottage?
  • Can I weather a real estate market downturn that could reduce the value of my property by 5 or 10%?

Other important considerations:

  • Run amortization schedules 1, 2, and 3% higher than the current market rate to see if you can pay for a higher escalating monthly mortgage payment just in case the economy shifts.
  • Consider not locking in a mortgage (keeping it open or only using a line of credit with the freedom to govern principal payments). If you determine that your plan must allow you to take advantage of selling, you may avoid future penalties.
  • Assess risks associated with a property such as an old condo with a special assessment (offloading the expense to all the owners collectively).
  • If you are nearing retirement, where do you want to live? Ask questions relative to your lifestyle preferences: “Is shopping, a park, a library, or city-life within walking distance?” or “Is there a major hospital nearby, and access to an airport or major roads such as the 401?”

The financial arrangements for your real estate can be affected by external influences, such as interest rate movements, and personal factors, such as your income and your ability to gain loan approval. The bottom line is that you must service any mortgage debt and pay down the mortgage.

Let us help you assess your situation as we help plan your best mortgage fit to suit your circumstances.