Ways to reduce fees associated with passing on your estate

A concerned grandmother called recently wanting estate planning strategies to avoid probate.

She was quite concerned, having heard one-third of her estate would go to lawyers and one-third to probate fees, leaving only one-third for her family.

I reassured her first about probate fees. My Feb. 4, 2024 column gave the formula for calculating probate fees, along with a couple of example calculations. It’s nowhere near one-third. Probate fees are only approximately 1.4%. For a $1 million estate, probate fees calculate out to be $13,450.

I then reassured her about legal fees. Lawyers are indeed expensive. If there is a fight over the will, legal expenses can eat up more than one-third of an estate but a run-of-the-mill estate, with no fights, shouldn’t cost more than about $5,000 in legal fees to achieve the estate grant, as long as you don’t saddle the law firm with a bunch of executor work you could do yourself. Call around. You might find some firms willing to do the work for less than that.

The executor you appoint might charge fees, typically in the range of 2% to 3%, but you’ve likely appointed a family member.

There are estate planning strategies that can eliminate the need for probate altogether, but those strategies come with their own expenses and can have downsides.

One common strategy I’ve written about a few times is joint ownership. Have a look at my columns published on Feb. 4, 11, 18, Sept. 1 and Oct. 27, for various discussions about that strategy and problems that can arise from it. Another, though expensive strategy, is a trust.

After a thorough consideration of all factors, I typically advise clients against employing probate avoidance strategies unless my clients are spouses with no step-children.

You might wonder how the government assesses the value of your estate for the purpose of collecting the applicable fees.

Your executor, as part of the probate process, will have to make a list of your estate assets along with their values. Secured debts, i.e. those that are secured against estate assets like a mortgage, are also listed. That list is attached to an affidavit your executor will swear is accurate.

Probate fees are assessed based on that affidavit, calculated on the total value of the assets minus the secured debts.

Only estate assets must be listed. There is no need to list assets that pass outside the estate.

I know. That’s a confusing concept. Here are some assets that would pass outside the estate provided you named a beneficiary that’s not your estate:

1. The proceeds of a life insurance policy,

2. The contents of a Tax-Free Savings Account (TFSA),

3. The contents of a registered retirement savings plan (RRSP) or Registered Retirement Income Fund (RRIF),

4. The proceeds of a Registered Pension Plan (RPP),

5. The proceeds of an investment product sold by life insurance companies I’m learning about called a segregated fund.

Each of these financial instruments allow you to name a beneficiary. If you name your estate as beneficiary, the proceeds become part of your estate and are subject to probate fees.

Another category of assets that pass outside the estate and need not be listed are assets owned jointly with someone in a true joint tenancy. I say “true” joint tenancy because there are different types of joint tenancy arrangements but that is a topic for another column.

With a true joint tenancy, the surviving joint owner becomes the full owner on your death and the asset passes outside your estate.

Everything else must be listed. For the most part, though, the list doesn’t have to be item by item. There’s no need to list each piece of cutlery, item of linen, article of clothing and piece of furniture but for some items it’s important to be specific.

Next week, I’ll give some direction about how to properly list estate assets when applying for an estate grant.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.