Reducing Probate Fees in BC: What Works and What Backfires

Probate fees in BC are calculated on what passes through your estate, so moving assets outside the estate can lower the bill. That is why adding a child to title, naming beneficiaries and setting up trusts are such common suggestions.

Each of these tools can work in the right situation. Each can also create tax, family or control problems that outweigh the saving. Here is how the fee is calculated and where the common strategies go wrong.

How BC probate fees are calculated

Under the Probate Fee Act, the executor pays the fee on behalf of the estate before the court issues the grant, in addition to the court's own filing fees. The rates are:

• Up to $25,000: no fee.
• $25,000 to $50,000: $6 for every $1,000, or part of $1,000, of value in that range.
• Above $50,000: $14 for every $1,000, or part of $1,000, of value above $50,000.

Example: an estate valued at $800,000 pays $150 on the band from $25,000 to $50,000 (25 × $6), plus $10,500 on the $750,000 above $50,000 (750 × $14), for a probate fee of $10,650.

What is counted

The value is the gross value of property that passes to the executor at death: real estate and tangible property located in BC and, if the person was ordinarily resident in BC, their intangible property, such as bank accounts and investments, wherever it is held. Because the Act uses gross value, most of the estate's debts do not reduce the figure.

Property that passes outside the estate is not counted, which is the idea behind every strategy below. If you are not sure an estate will need a grant at all, see when an estate in BC needs probate.

Joint tenancy: simple to set up, easy to get wrong

When property is held in joint tenancy, the surviving owner generally takes it by right of survivorship rather than under the will. Between spouses this is common, but it usually postpones the fee rather than avoiding it, because the property is then counted in the survivor's estate.

Adding an adult child to title or to an account is where this strategy can backfire:

• A presumed trust. In Pecore v. Pecore, 2007 SCC 17, the Supreme Court of Canada held that when a parent transfers property without payment into joint names with an adult child, the law presumes the child holds it in trust for the parent, and so for the estate, unless the evidence shows the parent intended a gift. What matters is the parent's intention at the time of the transfer, which siblings may later dispute in court.
• Exposure to the child's affairs. Once a child is on title, that interest can be exposed to the child's creditors, bankruptcy, or a claim by the child's spouse on separation.
• Loss of control. You will generally need the co-owner's signature to sell or mortgage the property, and you cannot simply take the interest back.
• Tax and transfer costs. Adding someone to title can attract property transfer tax unless an exemption applies, and it can have income tax consequences, particularly for property that is not your principal residence.
• Uneven results. If one child is on title and the will divides the rest equally, the overall split may not be what you meant.

Beneficiary designations on registered plans and insurance

You can name a beneficiary for an RRSP, RRIF or TFSA under Part 5 of the Wills, Estates and Succession Act (WESA), either in the plan documents or in a will that refers expressly to the plan. Under section 95, a benefit paid to a designated beneficiary does not form part of the estate and is not subject to the claims of the plan holder's creditors. Life insurance designations are governed separately, by the Insurance Act.

The trap is tax. Unless an exception applies, such as a transfer to a surviving spouse or common-law partner's own plan, the value of an RRSP at death is generally included as income on the deceased's final tax return, and that tax is paid by the estate.

Example: your will leaves everything equally to two children, and your RRSP names only one of them. The RRSP passes outside the estate to that child, but the income tax on it is generally paid out of the estate, so the other child bears part of the cost.

Review designations after a separation, a death or a new family member. Naming your estate as the beneficiary brings the plan back into the probate calculation.

Alter ego and joint partner trusts

If you are 65 or older, you can generally transfer assets into an alter ego trust (for yourself) or a joint partner trust (for you and your spouse or common-law partner) without an immediate capital gain, under section 73 of the Income Tax Act. Assets held in the trust at death pass under the trust terms, not through your will, so they are not part of the estate for probate fees. The trade-offs:

• Strict conditions. You, or you and your partner, must be entitled to all of the trust's income during your lifetime, and no one else may receive or use the income or capital before then.
• Tax is deferred, not removed. The trust is deemed to dispose of its capital property at fair market value on your death, or on the later death for a joint partner trust, and the trust pays that tax.
• Cost and paperwork. A trust needs a deed, a transfer of each asset and its own tax filings, so weigh the saving against the set-up and running costs.

Gifting during your lifetime

Anything you give away before death is no longer in your estate, but a gift is generally permanent: you lose access to it if your own needs change. Giving away an investment or property that has gone up in value can also trigger capital gains tax for you now, and gifts to one child can upset the balance in your will.

What tends to work: start with the numbers

Because the fee is about 1.4% of value above $50,000, a strategy makes sense only if its tax, legal and family costs are lower than the fee it saves. A planning review usually looks at:

• which assets would pass through your estate, and the likely fee
• whether existing joint ownership and beneficiary designations match your will
• tax on registered plans and on property that has gone up in value
• how each option affects your control and your family relationships

No will yet? Start there. See who inherits when someone dies without a will in BC.

Planning to reduce probate fees? Check the trade-offs first

Our wills and estate planning lawyers can review your assets, titles and beneficiary designations, explain the tax and family consequences of each option, and prepare a will, and a trust where one fits, that work together.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.