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Probate Planning - Unequal Treatment & Blended Families

Probate Planning


In recent years, probate planning has become a more recognized topic in estate planning discussions. This is due to the increases in probate fees in jurisdictions such as Ontario. In many provinces however, probate fees are essentially NIL. Even when considering provinces with ‘high probate fees’, the costs associated with probate planning may outweigh the fees incurred.



Unequal Treatment of Beneficiaries


Parents may add a child as joint owner on an asset to save probate fees. If this is done with a right of survivorship and the child is noted as a true joint owner, the child will receive the asset upon passing of the parent. This could result in the other children being treated unequally under the estate even though the parents intended to equally divide their assets.


Typically, a court will make the presumption that an asset held by an adult child in joint ownership is done so in trust. This presumption however can be disputed by the child. This could be accomplished by convincing the court that the asset was transferred as payment for services provided later in the life of the parent. The child would also likely still be eligible for their remainder interest of the estate.


Adding all of your child as joint owners can still result in the unequal treatment of one of the children. This could be seen where two children (all of the children in the family) are added as joint owners and one of the children dies prior to the parent. If the parent then dies shortly after and does not revise his/her will prior to passing, the asset would transfer in full to the sole remaining child.


This results in two issues. The estate could be left with a significant tax liability with no assets to liquate and address the balance. Additionally, the child that passed away could have children of his/her own and they would be effectively disinherited because of the joint ownership transfer. The grandchildren could proceed with litigation to obtain their share of the estate, but this would be costly and time consuming.



Disinheriting Children in a Blended Family


When you are in a blended family (a family where not all children are natural or adoptive children of both parents), care should be taken when engaging in probate planning as this can lead to disinheriting an entire branch of the family.


In provinces other than Quebec, direct beneficiary designations for RRSPs, RRIFs, TFSAs and insurance, along with jointly held assets will transfer to the surviving spouse when the first spouse passes away. These assets would then transfer to the child of the surviving spouse upon his/her eventual passing. Children of the first spouse are then left with nothing from the estate.



Conclusion


As we can see from these case studies, efforts to avoid probate fees can have drastically negative tax, distribution and equalization consequences. Instead of completing probate planning in a silo, it is important to consider your entire estate when making decisions. This will allow you to plan accordingly to protect your assets, minimize tax and preserve your legacy.



Call to Action


Do you have concerns about probate planning? An accountant is uniquely positioned to advise on your specific situation and help you find solutions that will protect your assets and preserve your wealth.

I help my clients do three things:

  1. Find common sense solutions to business and estate planning concerns.

  2. Minimize tax and maximize profits.

  3. Preserve legacy.


Are you looking for an advisor to help you analyze your estate plan? Feel free to give me a call at 403-343-7707.

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