Probate: the good, the bad, and the ugly
Learn about the process of probate so that you can make informed choices around estate planning. There are investment products available that may help to support you in creating a complete estate plan.
Note: the information contained in this article is not applicable in the province of Quebec. Quebec does not charge probate fees, but there could be court filing fees to probate wills that are not notarized. For more information, consult with a lawyer or a notary.
Do you know what probate is?
Probate is the legal process that:
confirms a will is valid; and
grants legal authority to an estate trustee or executor to manage and distribute a deceased person's estate.
If you don’t have a valid will at death (known as dying intestate), someone will need to apply to the court to take on the role of administrator (also called an estate trustee or executor in some jurisdictions) of the deceased's estate. It is generally a close next of kin that puts their name forward to the courts or the court will assign one usually based on family priority list.
The probate process exists to protect your estate from people who may make illegitimate claims against it. It proves to banks, financial companies and others that they are dealing with only individuals who are authorized to handle and transfer your property and assets.
Your estate can be made up of the money, personal belongings, property, and debts you have at death. However, there are exceptions. Assets held in an insurance contract or in a registered account, e.g., a Registered Retirement Savings Plan (RRSP)* may not be part of your estate if you’ve named a beneficiary or, when possible, a successor owner. Designating a beneficiary or successor owner means that probate isn’t required to facilitate the transfer of the asset.
Term tips
An executor carries out the terms of your will and manages distribution of your assets after you die. If you haven’t named an executor before you die, the court will appoint someone as your executor. An executor could be a family member, friend, or trusted professional, such as a lawyer or accountant.
A will is a legal document that details who you want to receive your money and belongings, when and in what proportions, after you die. Those you name in your will are your heirs. A will can also specify who you want to care for minor children and other dependents.
How does probate work?
Your executor submits your will together with a proof of death and the necessary documents to the probate court. The court will then validate it (i.e., that it is your final will). During this time, it’s possible that someone could challenge your will. For example, this might happen if someone believes that the will was created or updated when you lacked mental capacity to execute a valid will. In a situation like this, the court may decide to recognize a previous will as the true will.
Once the probate court validates your will, the executor can then follow through to fulfill the intentions outlined in it. This would include contacting any financial institutions to release your money and investments for distribution to your heirs. It would also include distributing your belongings and property, plus paying debts.
So, what’s good about probate? It establishes that a will is valid. In doing so, the heirs named in the will are legally entitled to your money, belongings, and property.
What's bad? What's ugly?
In some cases, however, the process of granting probate can be complicated.
1. The court makes your will and estate value public
This means your privacy is lost following your death. Anyone can obtain the details of your estate, subject to court rules and sealing orders. Privacy can be an important concern for certain individuals. When the details of an estate are public knowledge, heirs could become targets for financial abuse or could decide to challenge the estate.
When it comes to your estate’s privacy, ask yourself, “Do I want the general public to have access to the details of my estate?”
2. Administration of estate fees
There are fees associated with probate, which may include executor, accounting, and legal fees. There are also jurisdiction fees that can vary by the size and complexity of the estate. Some provinces charge probate fees based a sliding percentage of the estate. Other provinces charge probate fees based on bands within estate value. In general, provincial fees can range from 0% to 1.695%1 of the value of your estate.
When it comes to preserving the value of your estate, ask yourself, “How can I reduce some of the fees?”
3. It can take months for money, belongings, and property to reach heirs
The process of settling an estate can average 12 to 18 months. Simple estates can be settled in less time; complicated estates could take longer.
When it comes to your heirs, it’s key to ask yourself, “Do I want to make them wait?”
There are solutions
There are solutions available to address the issues of privacy, fees, and duration of estate settlement. These include using products that allow you to name beneficiaries, including non-registered investment accounts. There are two main types of insurance contracts:
Life insurance contracts
Insurance-based investments
Life insurance contracts can help you provide for loved ones or your favourite charity, for example, after you die. You can also use them to replenish the estate after taxes have been paid. There are many types of life insurance contracts, such as term insurance and permanent insurance.
Insurance-based investments can also allow you to provide for loved ones or charities after you die. In addition, some can provide opportunity for the growth potential you may be looking for with guarantees and the estate planning advantages of an insurance contract. Insurance-based investment products include accumulation annuities, payout annuities, and segregated fund contracts (also called Guaranteed Investment Funds or GIFs).
With these products, in most jurisdictions, you can keep the value of your investment and the identity of your beneficiaries private. This is because, with the designation of beneficiaries on your insurance-based investments, the death benefit flows directly to them and not through your estate.
Having a will is a good idea. However, it may also be important to have other ways, like insurance contracts, to pass on assets after you die. They can help settle your estate efficiently and mitigate the downsides of probate.
*In common law provinces, it’s possible to name a beneficiary on investments held in an RRSP and some other types of registered contracts, but it’s not mandatory. If there is no named beneficiary, these assets will form part of your estate.
1The province with the highest probate fee rate in Canada is Nova Scotia at 1.695%. Source: Probate Act S. 87(2), from Consolidated Public Statutes - Statutes of Nova Scotia.
Information contained in this article is provided for information purposes only. It’s not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities or other products. You should always consult your advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. and Sun Life Assurance Company of Canada disclaim any responsibility for any loss that may arise as a result of the use of the strategies discussed.