Probate is a legal process for collecting and distributing a person's assets after their death. Court costs and legal fees can be quite significant, prompting many to organize the transfer of their assets ahead of time to avoid this process. This usually means that certain items will not be included in the estate controlled by the executor. To protect your assets from being included in the estate and avoid probate in Canada, follow our tips.

Part 1

Step 1. Name a Beneficiary on Your Life Insurance Policy.

Step 1

Designate a beneficiary on your life insurance policy. Since life insurance payouts go directly to the named beneficiary, this money will not be part of the probated estate and therefore not subject to taxes and fees. You can also name a secondary beneficiary in case the primary one passes away before you.

Step 2. Keep Assets in Cash or Bearer Certificates.

Step 2

Hold your assets in cash or bearer certificates. Cash and bearer certificates, such as stocks, can be excluded from the estate, thereby reducing taxes and fees. A bearer certificate is a financial instrument, like a cashable check, that can be redeemed by anyone who possesses it.

Step 3. Transfer Property Ownership to a Joint Owner.

Step 3

Transfer ownership of property to a joint owner. Assets held in joint ownership will automatically pass to that owner and will not be included in the will. However, joint ownership can have its downsides, and you should consider the following before naming a joint owner:

  • A co-owner may access your accounts or encumber your property. Once someone has access to your property, they can mortgage it or, if it’s a bank or investment account, empty it without your knowledge.
  • You will need the co-owner's consent to sell or encumber the property. After naming a joint owner, they must agree to any transaction involving the property.
  • Naming a co-owner who is not the sole beneficiary may cause resentment among other heirs. Others may feel that the co-owner is managing the property only on their behalf, leading to inheritance disputes.
  • There may be tax implications, such as capital gains tax when transferring property to a joint owner. Consult a certified accountant or tax lawyer before proceeding.
  • A co-owner may have rights to the joint property, and their creditors may also make claims against it. Ownership with another person may be subject to their creditor's rights.

Step 4. Make Gifts.

Step 4

Make gifts. Gifts from your estate can reduce its value at the time of your death, thus lowering taxes and fees. However, gifting may have specific legal obligations, so consider the following:

  • You will need to relinquish control over the gift. For example, if you gift antique furniture, you must transfer it to the beneficiary and give up ownership.
  • There may be tax implications for the gift recipient. If the market value of the gift exceeds its cost, the income may be taxed as a capital gain. The Canada Revenue Agency defines market value as the highest price the property could achieve on the open market.
  • Tax liabilities and other contributions may arise from the gratuitous transfer of property. Consult with an accountant or tax lawyer before transferring property rights to protect your interests.

Step 5. Establish a Trust.

Step 5

Create a trust. This allows you to transfer ownership to a fund managed by a trustee you designate. You can also name yourself as the trustee. Assets held in a trust will not be included in your will and will not be subject to estate taxes.

Step 6. Consider Your Company Ownership Rights.

Step 6

Take into account your company ownership rights. If you have debts other than a mortgage, they will not be deducted from your assets when valuing them at the time of your death. This increases your estate's value and, consequently, the estate tax. Transferring assets acquired through a corporation can help lower your overall estate value, resulting in a reduced estate tax liability.

Step 7. Prepare Two Wills.

Step 7

Create two wills. In certain cases, parties holding specific assets can benefit from this scheme. The first will covers taxable assets, while the second deals with the distribution of other assets. Although this practice is not very common, a recent court in Ontario approved such an approach in the Granovsky Estate case against Ontario.