In common usage, probate refers to the process of applying to a court to have a will confirmed as valid and the charge levied by the Court for having done so. Technically the process is an “application for certificate of appointment of estate trustee with a will” and the charge is the “estate administration tax,” but in common usage both are still generally called “probate.”

Can you legally avoid probate? Yes! There are a number of strategies you can use.

Gift–Property that is given as a gift during your lifetime does not form part of your estate because you do not own it upon your death. The gift becomes the legal property of the recipient. In situations

where a testator does not require continued legal control of the asset and where there is no doubt that the recipient is the person who would receive that property upon death, this is the simplest strategy

to use.

Joint ownership–Quite often spouses will hold their home in joint ownership with right of survivorship, meaning that the home passes to the surviving spouse. Similar arrangements can

be made with individuals other than a spouse, and the type of property need not be restricted to real estate. In fact, many financial assets such as bank accounts and other investments such as term deposits are held jointly with the intention that the account goes to the survivor (or survivors).

 Insurance beneficiary designation–Under a life insurance policy you can name a beneficiary who is to receive the death bene_ t proceeds directly, without the payment passing through the estate. In addition to avoiding probate, any creditors of your estate will be bypassed. This also applies to GICs, term deposits, and segregated funds invested with a life insurance company.

RRSP/ RRIF beneficiary designation–As with insurance designations, probate may be avoided for named beneficiaries under RRSPs, RRIFs, and other similarly registered investment plans, although protection against estate creditors may not be available.

More Income, Less Tax, No Probate Fees

How come some retirees have more income and less tax? Let’s look at Betty, a 75-year-old retiree in Chatham. She inherited $200,000 and was looking for income and less tax. She also didn’t want to take a lot of risk. While she wanted income, she thought she would want access to some capital but not all. We decided to invest half into GICs and half into an annuity. Here is what Betty ended up with.

The annuity for $100,000 provided her with $774 per month guaranteed as long as she lives. That’s $9,288 per year that will always be there for her. We also put in a guarantee to her children for ten

years’ worth of payments. That means the payments will continue until ten years after her death. The second portion was invested into a one-year and a five-year GIC. The average return on those funds

is 4% combined. We used the barbell technique, half short-term and half long-term. Because we don’t know how interest rates may fluctuate, we take the average, which in this case is 4% (3.4% for the one-year GIS and year and 4.6% for the five-year GIC). Betty’s payout will be $4,000 from the GICs. This gives her a combined income of $13,288 per year on $200,000, or approximately 6.64%.

Now comes the tax. Since the GICs are fully taxable, she has $4,000 of interest income. (We invested the GICs with insurance companies so that we could name a beneficiary on the plan–when Betty dies, there is no probate cost.) The taxable portion on the annuity is only $2,494 per year, since we used a

prescribed annuity for tax efficiency. Although Betty receives income of $13,288 per year, she has taxable income of only $6,494 per year.

Now Betty doesn’t have to worry about market risk or a higher tax bill. She has a steady income and less tax. When Betty dies, all of the funds and/or income will go directly to her beneficiaries, free of any probate fees.