Probate in Ontario can be a time-consuming and expensive process, often costing 1.5% of the estate’s value in estate administration tax. While some estates require probate, careful planning can help minimize or even avoid it altogether. Here are the five best strategies for reducing probate fees in Ontario.
1. Use Joint Ownership with Right of Survivorship
Assets held in joint ownership with right of survivorship automatically pass to the surviving owner without going through probate. This applies to:
- Joint bank accounts
- Real estate (except in Quebec, where civil law differs)
- Joint investment accounts
Benefits:
- Immediate transfer of assets to the surviving owner
- Avoids delays and legal fees
- Simple and commonly used strategy.
Considerations:
- Ensure joint ownership is intentional and not just for convenience.
- The surviving owner inherits full control, which may cause disputes among beneficiaries.
Learn more about joint ownership in Ontario.
2. Name Beneficiaries on Registered Accounts
Certain financial accounts allow owners to designate beneficiaries, ensuring direct transfer without probate involvement. These include:
- Registered Retirement Savings Plans (RRSPs)
- Registered Retirement Income Funds (RRIFs)
- Tax-Free Savings Accounts (TFSAs)
- Life insurance policies
Benefits:
- Assets transfer directly to the named beneficiary
- No probate fees on these accounts
- Quick and seamless transition
Considerations:
- Designate beneficiaries properly to avoid legal disputes.
- Regularly review beneficiary designations to ensure they are up to date.
Learn how to designate beneficiaries for registered accounts.
3. Set Up a Trust
Trusts can hold assets outside of the estate, preventing them from going through probate. Common types include:
- Living Trusts (assets are managed and distributed while you are alive)
- Alter Ego and Joint Partner Trusts (for individuals over 65 to transfer assets tax-efficiently)
- Testamentary Trusts (created upon death through a will)
Benefits:
- Keeps assets out of probate
- Allows for structured and controlled distribution
- Provides tax benefits in certain situations
Considerations:
- Trusts require legal setup and ongoing management.
- May involve legal and administrative costs.
Find out more about setting up trusts in Canada.
4. Gifting Assets Before Death
Gifting assets while alive reduces the value of the estate, minimizing probate fees.
Examples:
- Transferring real estate or investments to beneficiaries.
- Giving monetary gifts to heirs.
- Donating to charities for tax benefits.
Benefits:
- Reduces probate fees by lowering estate value
- Allows you to see beneficiaries enjoy their inheritance
- Potential tax advantages.
Considerations:
- Gifts may be subject to capital gains tax.
- Ensure gifts do not compromise your financial security.
5. Use Multiple Wills
In Ontario, multiple wills can be used to separate assets subject to probate from those that are not.
How It Works:
- One will covers assets that require probate (e.g., bank accounts, publicly held shares).
- A second will covers private company shares, personal assets, and business interests, which may not require probate.
Benefits:
- Reduces probate fees on private assets
- Legally accepted in Ontario
- Allows for structured estate planning
Considerations:
- Must be properly drafted by an estate lawyer.
- Not suitable for all estate structures.
Avoiding probate in Ontario requires careful planning and strategic estate structuring. By using joint ownership, designating beneficiaries, setting up trusts, gifting assets, and using multiple wills, you can minimize probate fees and streamline asset distribution. Consulting an estate lawyer or financial advisor can help tailor these strategies to your specific needs and ensure compliance with Ontario’s legal framework.
