Latest Updates

Probate Fees – Part Two

Probate Fees

Part Two

 In the last update, we reviewed the basics of probate fees. If a will is probated, the Province of Ontario charges a fee of approximately 1.5% and the estate may also incur legal fees.

It is reasonably straightforward for most estates to avoid probate fees; the question is whether the effort is worth the cost. The basic strategy to avoid probate fees is to pass the ownership of assets to beneficiaries without going through the will. This objective can be achieved by the joint ownership of assets. Other strategies could include:

  • designate a beneficiary on certain assets such as registered retirement savings plans, registered retirement income funds or life insurance policies
  • distribute assets prior to death to reduce the size of the estate

Let’s review each of these alternatives in detail.

Joint Ownership of Assets

Joint ownership is a common strategy to avoid probate fees, but it is important to differentiate the two types of multiple ownership – joint tenancy and tenancy in common.

Joint Tenancy – This form of ownership allows two or more people to own an asset together. All persons listed as joint tenants share ownership and control of the asset. Upon the death of one of the persons, the ownership automatically passes to the surviving tenant. By passing directly to the surviving individual, the asset does not form part of the estate and thus is not subject to provincial probate taxes.

Tenancy in Common – This is another form of joint ownership, but without the right of survivorship. Unlike a joint tenancy agreement, co-owners in a tenancy in common arrangement can own equal or unequal interests in an asset. On the death of one of the co-owners, his or her interest will not pass to the surviving owner but will transfer according to the will of the deceased.

Unlike joint tenancy, the assets held under a tenancy in common agreement will be subject to probate taxes because the assets would have passed through the estate of the deceased tenant.

If assets are owned with a joint tenant agreement with rights to survivorship, the death of one of the owners would result in the property transferring to the survivor. In these circumstances, the assets transferred would not be subject to probate. For example, both spouses could be joint owners of their home. Upon the death of the first spouse, the property would transfer to the surviving spouse and no probate fee would be paid. The surviving spouse may wish to leave the home to her only child, the parent and the child could arrange to become joint owners of the home.

While joint tenancy can be effective in avoiding probate administration costs, there are a number of complications that may result from its use.

Potential issues with Joint Ownership

Family Law Implications – Ontario has family law legislation that provides a series of rules to divide family property upon marriage breakdown. If property is transferred to avoid probate fees, a divorce of one of the owners can result in unintended consequences. For example, assume a mother has a GIC worth $500,000 and it is her intention to transfer the investment to her only son. If the son’s name is added to the GIC, it would be jointly owned by the mother and her son. This strategy may eliminate the probate fees, but if the son separates from his spouse, his ownership of the GIC would result in it becoming a family asset and the wife may have a claim when the family’s assets are eventually divided. If the asset was not jointly owned and transferred on the death of the mother, but after the couple separates, the ex-spouse would not have a claim on the investment.

Control of Assets – If assets are transferred to attain joint ownership, the individual may lose control over the use or disposition of the asset. Returning to our previous example, once the son’s name has been added GIC investment, he may use the money in ways not contemplated by his mother. If this is a significant issue, consideration may be given to establishing a trust to maintain control of the asset.

Income Tax Issues – The income tax act looks past the registered owners and determines who provided the funds to purchase the asset. For example, if a husband purchased a $100,000 GIC and it was in the name of both the husband and the wife, the interest earned would be that of the husband even though it was jointly owned. It is straightforward to add someone’s name to a GIC or bank account, but equity investments are more complex and could result in the generation of a capital gain or loss. It would be prudent to obtain tax advice if equity investments are involved.

A family may believe they have sufficient assets to fund their retirement and desire to transfer assets to their children or grandchildren prior to their death. Such transfers are normally straightforward unless the child or grandchild is under the age of 18. If the child or grandchild is under the age of 18 the attribution rules in the income tax act will apply. These rules apply if an asset received by way of transfer generates any income. For example, if a father transferred a $1,000 bond, paying interest at the rate of 3%, to his 15-year-old daughter, the $30 of interest income would be income of the father, rather than the daughter. If the recipient of the transfer is over the age of 18, there are normally no tax implications. If an amount is transferred to a child or grandchild over the age of 18, any income from the loan will be attributed back to the parent or grandparent if the main purpose of the loan was to reduce the tax liability of the transferor.

 Designating Beneficiaries

          Certain financial instruments allow an individual to designate a beneficiary for any proceeds upon death. Examples would include registered retirement savings plans, registered retirement income funds and life insurance policies. If a beneficiary is named, the proceeds will go directly to that individual, rather than passing through the estate of the deceased. By not being included in the estate, RRSP’s, RRIF’s and life insurance would not be subject to the probate fees. Owners of these assets who have either not designated a beneficiary or named the estate as the beneficiary may wish to reconsider their decision.

Distribution of Assets Prior to Death

         Individuals owning assets that may be subject to probate, may wish to consider distributing such assets prior to their death. The smaller the estate, the lower the probate fees. This technique may have advantages beyond reducing probate fees, including:

  1. assets that are expected to increase in value may be gifted prior to the death and any future gain in the value of those assets will be transferred to the recipient. This technique also reduces the tax liability upon the individual’s death; and
  2. the beneficiaries may be in greater financial need of their inheritance earlier in their life, rather than waiting for the eventual death of their parents.


Leveraged Investments – The probate fee is based upon the gross value of the investments. Thus, if an individual borrowed $1,000,000 to purchase an investment of the same value, the entire investment would be subject to the probate fees, even though the individual has no equity in the investment.

Conclusion – Probate fees may be significant and there are a number of strategies that can be implemented to reduce their impact. Due to the complexity and overlap of issues, it is strongly recommended that you seek legal advice in this aspect of your estate planning before a decision is made to implement these probate reduction strategies.





To Top