How can we minimize the taxes and expenses our adult kids will face on our deaths?
Thanks, Brenda, for the question.
This is an incredibly broad topic. I am going to cover joint ownership in this column. And it’s going to require a sequel.
The ownership of many assets cannot be transferred to your child after your death without a court document that gives an executor that authority.
That court document is called an estate grant.
What assets require an estate grant to transfer?
Anything that you are registered owner of, such as accounts at banks and other financial institutions, vehicles, manufactured homes and properties registered in the land titles registry.
There are exceptions for low value estates.
ICBC has a policy to transfer title to a vehicle if the total estate assets do not exceed a value of $10,000.
Financial institutions might agree to transfer accounts in the $10,000 range without requiring an estate grant.
The legal process for obtaining an estate grant is called probate.
Probate costs money.
One cost is for the process itself. If your child hires a lawyer to handle that rather complicated legal exercise, they will pay thousands of dollars in legal fees.
But while they might find it complicated, frustrating and time consuming, that largely administrative process can often be completed without hiring a lawyer.
The other cost is probate fees, which are levied by the government as a percentage of the value of your entire estate.
Not just the value of assets requiring an estate grant to transfer. All estate assets.
How much are probate fees? Nothing is payable on the first $25,000; 0.6 per cent is payable on the next $25,000 and it’s 1.4 per cent on everything over $50,000.
Those are very low percentages. Probate fees for a $100,000 estate will be only $850.
For a $500,000 estate they will be $6,450. And for a $1 million estate they will be $13,450.
But probate fees are payable only if the probate process occurs.
If there are no assets requiring an estate grant, there is no need for probate and your beneficiaries avoid both the legal and the probate fees completely.
Let’s say you have $500,000 in a pillowcase along with a bank account balance of $25,000.
After you die, the bank will not transfer that $25,000 to your child without an estate grant.
When applying for the estate grant, your child must list the $500,000 of pillowcase cash along with the bank account.
And pay probate fees on the entire amount.
Total probate fees would be $6,800. I get to that number by attributing nothing for the first $25,000, 0.6 per cent ($150) for the next $25,000 and 1.4 per cent ($6,650) for the final $475,000).
If your child doesn’t have to deal with that bank account, they would not need an estate grant and could avoid the probate expenses altogether.
How could that be accomplished?
One way is through joint ownership of the bank account.
If one joint owner of an asset dies, the other joint owner becomes the sole owner.
You simply add your child as a joint account holder before you die.
In fact, you could keep the entire $525,000 in a joint account and there would still be no need for an estate grant and therefore zero probate expenses.
Your child would simply become the sole holder of that account after your death.
The joint ownership trick works for land title assets as well – a condominium apartment, house, patch of land or other asset registered in the land title system.
Let’s say you own a $2 million home.
If you add your child to title of that home as a joint owner (called joint tenancy), then all your child has to do is file your death certificate with the land title system after you die and they become the sole owner.
No need for an estate grant.
But before you rush off to add your child (or children) as joint owners of your assets, you need to consider potential bad consequences of taking that step, which I will discuss in my next column.
And while I am giving you very simple scenarios, your situation might have complexities.
I will always recommend you invest the time and fees to consult with both an estate planning lawyer as well as an accountant with estate tax expertise.
Failure to do so could cost your children dearly and result in outcomes that you never intended nor conceived of.
Keep coming with the questions!
Paul Hergott is a West Kelowna lawyer.