D. Smith: Avoid probate the easy way
Do you hold your GICs, mutual funds and stocks in banks or credit unions?
Do you realize these assets will go through probate upon death when not held in joint ownership with right of survivorship?
In B.C., probate fees are 1.4 per cent of the value of probateable assets. Add in the cost of legal and accounting fees, and the average cost of probate is approximately five per cent.
The other huge negative about probate is the average lengthy delay of 18 months for the probate process to be completed.
Probate fees, accounting and legal fees erode an estate’s value and the lengthy time to process probate causes stress to executors and family members.
Why do Canadians keep their investment assets in a financial institution where probate is triggered upon death?
Banks and credit unions are huge and profitable. They want to keep your money. Canadians are not encouraged by their bank or credit union to take their money out of the bank for any reason.
They sell you the only investment options they have available and they do not offer insurance products to avoid probate.
The reality of big banks and credit unions is to make huge profits. That is their number one mandate and you, as a consumer with assets, are part of their profit.
What do banks and credit unions offer in regards to estate planning?
A bank employee may suggest you put an adult son or daughter on your investment accounts or GICs to avoid probate.
GICs can be put in joint-ownership with an adult child. However, review the pros and cons before you share your assets accumulated over a lifetime with a son or a daughter.
Parents want to report all the interest income on their own tax return as the accumulated assets are theirs, and adult children do not want to report this interest income on their own tax return.
Social insurance numbers are provided as a mandatory requirement on all investment and GIC accounts.
The CRA can impose the equalization of investment income to the holders of these assets and adult children can be required to share the joint account investment income on their own tax returns.
Putting adult children on an investment account with a parent can result in capital gains upon transfer of assets.
Care should be taken to understand the negative aspect of putting an adult daughter or son on a home to avoid probate.
Problems with joint tenancy are loss of control of sole ownership where the new co-owner (adult son or daughter) must agree to the sale or remortgage of a home.
Exposure to creditors of co-owners if financial difficulties arise and marital problems occur and an ex-spouse can claim a percentage ownership of their husband’s or wife’s share of a parent’s home.
There is also a potential loss of principal residence status for the individual not residing in the home.
Putting a family home, investment account or GIC in joint-ownership with a child can impose risks and these agreements should not be entered into lightly.
Many joint-ownerships meant to avoid probate are lawsuits waiting to happen and can split families apart.
There is also the potential for the CRA to review and deny a joint-ownership formulated to avoid probate.
Joint-ownership with an adult son or daughter can end in financial ruin for some families.
A more effective solution is to use insurance GICs, purchased from an insurance company to allow a named beneficiary or multiple beneficiaries.
Insurance investment products can be used instead of traditional mutual funds, bonds or stocks to allow a named beneficiary.
The parent owns and controls the insurance investment and only upon a death are the assets transferred without probate to the named beneficiaries on the contract.
GICs, bonds, stocks and mutual funds held in an individual account at a bank or credit union will go through the probate process.
Insurance products are not sold at traditional banks and credit unions.
The simple and most effective estate planning strategy is to purchase life insurance GICs or life insurance segregated investments and name your beneficiaries on the contract to avoid probate.