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Probate Protection


  • pg 1
									                     Your Finance

               By John Johnson, LLB

                                         Probate offers proof and protection for all

       he word “probate” seems to come up a lot in estate          codicils, which are a form of will, the usual purpose of
       planning conversations these days. Most people              which is to amend an existing will in a minor way, such as
       want to know what it is and why it is required. To          changing the name of the estate trustee in the original will.
know what it is requires a little Latin,because it comes from      Unfortunately, there may be several codicils and therefore
the Latin verb probere — to prove. Most wills contain the          several amendments, and herein lies the problem.
words “this is the Last Will and Testament of….” A person              Depending upon the skill of the person or persons
may execute several wills in a lifetime, but generally it is the   who drafted the codicils, reading all of the documents
last one that expresses his or her final living wishes. The        together may lead to confusion as reference to assets or
purpose of the probate process is to prove that the docu-          beneficiaries may overlap or may conflict. This happens
ment placed before the court represents those wishes.              most frequently when the testator decides to make will
     In most cases,which will is last is obvious from the doc-     repairs at home, without any legal assistance.
ument, which is usually dated and contains a sentence                  This situation provides a good example of the value of
revoking all previous wills. Sometimes there are subsequent        the probate process, which is to make sense of the last
wishes of a testator as contained in the    especially in the simple case where          this in mind, probate is often prefer-
wills and codicils that have been left      there is only one testamentary docu-         able to putting your personal signa-
behind.The court may refer to statutes      ment that nobody has disputed? The           ture on the line but each situation
relating to succession, which provide       answer is banks, trust companies,            requires a weighing of the risk of pro-
guidance in interpreting wills. In addi-    stockbrokers, real estate agents, reg-       ceeding without probate. Remember
tion, there are also various reported       istry offices and any other financial or     that probate protects the estate
decisions of other courts, some cen-        governmental body that insists on offi-      trustee from personal liability when
turies old, which set out certain basic     cial verification of the estate trustee’s    distribution is made in accordance
rules for interpreting wills, always        authority to act on behalf of the estate.    with the provisions of the probated
with the goal of avoiding an intestacy      This is based upon the reluctance of         will.
and trying to come to a comprehen-          these institutions to part with the               Ontario has one of the highest
sive view of a testator’s wishes, given     deceased person’s financial assets           probate fees schedule in the country.
that he or she is not available to dis-     until there is something in their files      For example, an estate worth
cuss the matter personally.                 that protects them when they do              $500,000 would attract fees of
     The end result of the court            decide to distribute.                        $7,000.These fees are now known by
process is probate.The court will pro-           Some institutions will release          provincial     statute     as   Estate
vide a “Certificate of Appointment of       assets without probate, usually for          Administration Taxes — or EAT,which
Estate Trustee With a Will.” One of the     smaller amounts of up to $10,000, but        somehow seems appropriate.
instant benefits of this process is the     it varies from institution to institution.        Some assets do not require pro-
recognition of the person who will act      This threshold is often flexible. In         bate, such as life insurance policies
officially on behalf of the estate. In      return for this flexibility, the institu-    and registered retirement savings
modern legal parlance, this person is       tion will usually require a personal         plans payable to a specific named
called the estate trustee, but in reality   indemnity from the estate trustee to         beneficiary. These assets pass outside
this is the same person we used to call     protect the institution in the event         the estate and are payable immediate-
the executor or executrix.                  that the will is challenged and monies       ly, upon proof of death, to the named
     So who needs all of this proof,        are paid to the wrong person. With           beneficiary. This is a very convenient

                                     July/August 2006 •    15   • Fifty-Five Plus Magazine
                                                                                             Your Letters
way of moving assets quickly to meet        most attention in the courts is the joint
the immediate exigencies such as            bank account. In this case, the mother
funeral expenses and probate fees that      transfers her bank account into joint
may be required in respect of other         names with her son with right of sur-
assets. In the case of registered retire-   vivorship. Normally, this is done for
ment savings plans, where a spouse is       purely logistical reasons because of her
the named beneficiary, all of the           inability to get out to the bank or the
money in the plan can be rolled over        bank machine. In this scenario, it does
to the spouse named as beneficiary          not matter to the bank where the
without triggering any capital gains        money came from. The son has equal
tax consequences on the exchange.           access to it and there are no laws that
      Assets also pass outside the estate   regulate the manner in which he is
when the deceased held them jointly         able to operate this account or how
with a surviving beneficiary. This is       much money he withdraws. On his
very appropriate between spouses,           mother’s death, the son will inevitably
but a word of caution is necessary          claim that he was a great help to his
where assets are held jointly with the      mother in the managing of her affairs
next generation. Let us say that a wid-     and that she intended that he would
owed mother places title in her prin-       have all of the remaining money in the
cipal residence in joint tenancy with       joint bank account following her
her son, who resides in another part of     death.This assertion will usually get the
the city with his wife and family.          attention of his siblings, who discover
Ordinarily, the widow’s principal resi-     that mother’s only remaining asset
dence would be transferred after            turns out to be this bank account.This
death without capital gains tax just as     unfortunate scenario is played out
it would have been during her life-         daily in the courts of Ontario as sib-
time, but by placing one-half of the        lings argue over what mother intended
property in the name of her son, half       when she named her son as the joint
of the tax-free benefit is lost because     signatory on her bank account.
half of the property is not her son’s            The much-preferred course of
principal residence.                        action for mother is to grant to her son
      It gets worse. The son is now a       a Power of Attorney for Property,
joint owner of his mother’s house. He       which imports no survivorship rights
can exercise all of the rights of owner-    and makes her son accountable for
ship and move in at will with his fami-     every dime spent by him or her while
ly. If he decides that the house is not     exercising the Power of Attorney for
suitable for his accommodation, he          Property. Given the utility of the
may exercise the right of a joint owner     Power of Attorney for Property, it is
to force the sale of the property to        always surprising that using the joint
realize his new found “investment.”         account to avoid probate fees is so
Even if the son does not move in, he        prevalent. The fear of incurring pro-
now owns a property that may be an          bate fees should not drive away com-
attractive asset to his creditors to        mon sense nor interfere with good tax
cover his debts, or, if he and his wife     planning. The probate process is
suffer a marriage breakdown, his half       meant to protect your wishes after you
interest in his mother’s property may       have moved on.
become part of his net family proper-
ty, to be divided with his wife in any      John Johnson is a partner with the
subsequent divorce.                         law firm of Nelligan O’Brien Payne
      Many forms of property can be         (, with offices in
held jointly, such as stock portfolios,     Ottawa, Kingston, Vankleek Hill and
mutual funds and motor vehicles, but        Alexandria.
the one that seems to generate the
                                     July/August 2006 •    16   • Fifty-Five Plus Magazine

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