If you recently made a last will and testament, or are in the process of writing one, you might be wondering: What is Probate and why is it important?
Probate is a court-supervised proceeding that gives recognition to your will.
To understand probate, it is important to know how your estate plan is handled after your death. Your estate refers to your total assets, minus any liabilities.
In your last will, you would have designated an executor—an individual or an institution responsible for sorting your finances after your pass away. They are also responsible for overseeing the distribution of assets. The executor will take stock of your assets, pay off any liabilities, and then distribute the remainder among your heirs according to the instructions in your last will.
While this appears to be reasonably simple (and it is most of the time), difficulties can arise. Assume your executor goes to your bank, shows them your will and a copy of your death certificate, and asks for access to funds in your account. The bank employee cooperates after the person is identified and everything is in order.
Now imagine that a week later, another person enters into the bank, displays a separate will prepared after the original will, in which this individual is named the executor, and wants access to the contents of your bank account.
How does the bank know that the first paper was not the last will and testament? How can it be certain that there isn't another will?
The bank or any other financial institution has neither the expertise nor the resources to authenticate a will. This is where the probate process comes in.
What is Probate?
Probate is a legal procedure that confirms a written will is the valid and final will of the deceased. It also confirms the appointment of an executor.
If your estate has assets that need to be distributed, it will likely go through probate. Generally speaking, the more complicated the last will and testament, the more likely probate is needed.
Before the executor distributes the deceased's assets, the probate procedure is used to verify a will and ensure that it is actually the deceased's final will. Financial institutions, such as banks, will not deliver the deceased's assets to the executor until the will has been probated. This helps to prevent fraud or misconduct.
An executor is the person in charge of handling your estate. The executor is responsible for your assets after your death and follows the directions in your last will and testament. Assets refer to anything you own that has monetary value.
If you are writing a will, you must name an executor. As your executor, you can name anyone – a spouse, a relative, a lawyer, or even a trust.
What Is an Executor?
The executor of your will is responsible for securing and distributing all your assets after you pass away according to the wishes outlined in your will. Generally, an executor is a person, but you can also name a trust company. If you’re choosing an individual, it is important you pick someone that you trust.
The executor will gather all your assets and secure them until they can be distributed among your heirs.
As you may guess, this is an important task. Therefore, it is best to start planning as early as possible. You can always update or re-write a will if needed. But developing this legal document early can help you choose the best person to manage your affairs after your death.
How does probate work?
The majority of your assets stated in your last will and testament are subject to probate. The probate court affirms that the assets are part of your estate, that you own them completely, and that there is no pre-established beneficiary. All of your bank accounts, investments, real estate properties, and automobiles will be probated following your death.
Assets held in joint ownership with others, like a home, do not go through probate. Neither do assets with a pre-established beneficiary, such as a life insurance policy.
What happens during probate?
The probate process involves the following steps:
- The executor of your estate will submit your will and any related documents, like a list of all your liabilities and assets to the probate court.
- The court will go through the submitted documents and handle any questions regarding the last will. If you had made multiple wills, the court will determine which one of them is the true last will and testament.
- Once the probate court decides everything is in order and accepts the last will, it will issue a “Grant of Probate” to the executor. This is a legally-binding order issued by the probate court that confirms the appointment of your will’s executor. After a “Grant of Probate” has been issued, the executor has the legal authority to administer your estate. This document is also sometimes referred as a “Grant of Admission” or “Grant of Letters Probate.”
Can a will be challenged?
While the majority of wills are uncontested, a will can be challenged on many grounds.
For example, if the deceased left multiple wills, the validity of the last will and testament may be called into question. Someone may also contest the will if they believe it was produced under duress (e.g. unlawfully created under pressure), forgery, or fraud.
The will can also be contested if there are grounds to suspect the deceased person was under the influence of a substance at the time it was written or lacked the mental capacity required to write a will. This is especially true for those who are suffering from a major mental disease.
A will might also be challenged if the deceased person did not completely understand and authorize the contents of the will. This is especially true if the deceased had inadequate literacy, a visual disability, a speech impediment, or hearing issues.
Once the court validates the last will, it will look at whether the executor named in the will is able and willing to serve in their role. The probate court may decide that the chosen person is no longer able to serve as an executor. This may happen if that individual:
- no longer wishes to perform the role of an executor
- is currently in prison
- has since experienced a debilitating injury
- is no longer alive
In such situations, the probate court may deem it necessary to appoint someone else to oversee the repayment of your debts and distribution of your estate among your heirs, according to a last will.
How much does probate cost?
How much probate costs depends on your province of residence and the value of your estate. Generally, probate costs in Canada can be anywhere between $0 and $1.7% of the value of the deceased’s estate. Some provinces waive probate fees or offer a considerable discount for smaller estates.
For example, in Ontario, estates under $1,000 are not charged a probate fee, while in British Columbia, probate is free for estates under $25,000.
How to reduce probate fees
The deceased’s estate pays the probate fees, also referred to as the estate administration tax. These costs can reduce the assets available for distribution to your heirs. You can plan ahead to reduce these costs, including:
- Designating a beneficiary, other than the estate, on each of your registered accounts such as a registered retirement savings plan (RRSP) or tax-free savings account (TFSA). If you own a life insurance policy, designating a beneficiary, other than the estate, can ensure it will not pass through probate.
- Using joint bank accounts to avoid probate. Funds held in a joint bank account pass to the surviving account holder outside the deceased’s estate. That means these funds do not have to go through the probate process.
- Co-own a home with a spouse or other trusted partner. After your death, the property will pass to the surviving owner without having to pass through probate.
Probate rules may vary by province. Therefore, you should consider consulting an experienced estate lawyer to find out ways to lower probate costs.
Does every will in Canada have to pass through Probate?
Almost all wills in Canada pass through the probate process. That is because banks and financial institutions will not give the executor of the deceased’s estate access to the funds held in the deceased’s name unless a probated will is presented. The only exception is when all of your assets (e.g. your bank accounts and house) are jointly owned. In this scenario, your entire estate will pass to your surviving partner without the need for probate.
Does life insurance go through probate?
Life insurance payouts are usually paid directly to the beneficiaries without having to go through probate. But in some cases, the proceeds have to pass through probate.
Life insurance passing through probate is not an ideal scenario because:
- The payout is delayed. Generally, life insurance companies process death benefit claims within 30 days. However, if the payout passes through probate, the deceased’s heirs will have to wait much longer to receive the death benefit.
- Your heirs will not receive the entire death benefit. When life insurance proceeds pass through probate, the payout becomes part of the deceased’s estate. The court will deduct probate fees and other costs before distributing the remaining death benefit according to the instructions left by the deceased in their last will or to their province’s intestacy laws. Keep in mind that if you have unpaid debts, the life insurance proceeds can be used to pay off the creditors.
There are two situations in which the life insurance payout requires the involvement of a probate court.
- Estate is listed as the beneficiary or no beneficiary is mentioned
When you buy life insurance, you are asked to name a beneficiary—a person or an entity that receives the payout upon your death. Proceeds go to your estate when you have listed the latter as the beneficiary or have not listed any beneficiary. However, naming the estate as the beneficiary or no one as the beneficiary (which amounts to the same thing) is not advisable, since the proceeds will pass through probate. That means your heirs will neither receive the entire death benefit nor receive it quickly enough.
- The beneficiary predeceases you
If the beneficiary passes away before you do, then the proceeds will go through probate. You can easily avoid this by:
- Reviewing and changing the beneficiary designation after every major life event (like marriage, divorce, or the death of the main beneficiary).
- Naming both primary and contingent beneficiaries (The primary beneficiary is first in line to receive the death benefit, while the contingent beneficiary is second in line and gets the proceeds in the event of the demise of the primary beneficiary).
Probate is a legal process that authenticates a will and appoints a named executor so that he or she can distribute your assets according to your wishes. Almost all Canadian wills must pass through the probate court. Probate rules, timelines, and fees may vary from one province to another.
Frequently Asked Questions
Is probate expensive in Canada?
Probate costs vary depending on the province you live in and the value of your estate.
However, they may not be as high as you think. Many provinces do not charge any probate fees for smaller estates. If you are worried that probate fees will considerably lower the inheritance you want to leave behind, consider consulting an estate lawyer.
How can I reduce probate fees?
If your estate’s value is above a certain dollar amount, you will have to pay probate fees. You can lower the costs by using joint bank accounts with a right of survivorship. Also, make sure your other financial accounts have pre-designated beneficiaries, other than the estate. In other words, registered saving vehicles such as TFSA or RRSP and life insurance policies fall outside your estate, if they have beneficiary designations.
How long does a probate process take?
This depends on factors such as the complexity of the will, whether there are any challenges to it, and the province in which the probate is taking place. The whole probate process may take up to a year, even longer if someone challenges the deceased’s last will.
Do you need a lawyer to make a will in Canada?
While legal advice may prove beneficial, you do not need to hire a lawyer to make a will in Canada. You will need to name an executor and sign the document in the presence of two adult witnesses. You can choose anyone as your witnesses, as long as they are not a named beneficiary in your will. Your witnesses must also sign the document for it to become a legal last will and testament.
Who should you choose as an executor of your will?
Most people choose a close relative or friend as their executor, but you can also appoint a notary, a lawyer, or a trust company as your executor. If you are naming an individual, like a close friend, it would be best to ask them first if they are willing to work in the capacity of an executor after your death.
Does life insurance pass through probate?
In most cases, life insurance policies bypass the probate process. However, in certain instances, probate is required. For example, if you have named the estate as the beneficiary or not named a beneficiary, your life insurance policy will pass through probate. The proceeds of your policy will also go through probate if the named beneficiary dies before you and you have not named an alternate or contingent beneficiary.