What Assets Are and Aren’t Subject to Probate
Although Canadian laws don’t have inheritance taxes, the process of distributing a deceased person’s assets is overseen by the courts through probate and this process can be quite costly and time-consuming.
However, not all assets are treated equally when it comes to probate law. Some items can bypass probate entirely, allowing for faster and more private distribution of assets.
If you want to understand more about probate and how it works, this guide is for you. We’ll take a closer look at assets that are subject to probate, as well as those that are conveniently excluded.
What Is Probate?
Probate is a legal process carried out by a designated court to ensure proper handling of a person’s estate after they pass. The courts oversee the administration of the estate through a series of aspects, which include:
Identifying and inventorying the assets
Repaying any outstanding debts or taxes through the estate’s assets
Distributing any remaining assets to beneficiaries
While these are the main steps of the probate process, there are more steps involved making it a time-consuming process. These steps can also vary from one province to another.
Combined with the additional fees associated with probate laws, this can be quite frustrating to beneficiaries who depend on those assets, especially since they can access any of these assets until the probate process is complete.
Luckily, not all assets are subject to probate, as some of them can bypass this process and go straight to the deceased person’s beneficiaries.
What Assets Are Subject to Probate?
Individually Titled Assets
Individually titled assets (occasionally called real estate probate items) are any assets solely owned by the deceased through a deed, title, or any other recognized document.
One thing to know here is that these assets can vary significantly, as they encompass a huge variety of aspects.
For instance, they can include physical items like land, houses, farms, and vehicles as well as non-physical ones like investment interests like bonds and stocks.
These items usually have to go through probate because the court needs to confirm the deceased’s ownership before granting the executor the legal authority to transfer, distribute, or sell them as instructed in the will.
While most solely owned assets are subject to probate, some provincial laws may vary regarding their eligibility as well as the fees and timeline of their processing.
Personal Property
When people think of individually titled items, they immediately think of grand possessions like real estate, vehicles, and other items with deeds or official documents to confirm their ownership.
However, the everyday items that you own are also considered yours even if without titles, as long as you have other documentation that shows that you paid for them, such as receipts, bills of sale with your name on them, or bank records validating the purchase.
Small estate probate items may include but are not limited to:
Jewelry and precious metals
Artworks
Valuables and memorabilia
Electronics and devices
Lawn equipment and tools
Furniture
Clothing
Family heirlooms
As long as the deceased is the sole owner of any of these items, they’ll typically go through probate and affect the overall fees. Keep in mind that some provinces may have a minimum estimated value to be included in the probate.
Bank Accounts
Any individual bank accounts that only bear the name of the deceased are subject to probate. The court first confirms the deceased’s ownership of the bank account and then grants its control to the executor.
In most cases, the funds within the bank accounts are used to settle any financial obligations, such as debts, taxes, insurance payments, etc.
If the funds within the bank account aren’t enough to cover these payments, the court looks for other assets to pay for the rest of the liabilities.
However, if the bank accounts have enough money to cover them, the rest of the money goes to the beneficiaries after processing.
Investments
Similar to bank accounts, the investment portfolio and accounts of the deceased are also considered probate assets. This includes stocks, mutual funds, bonds, and other investment items.
However, not all investments are subject to probate, as the assets here need to be fully owned by the deceased and have no designated beneficiary in the official documents or certain clauses that transfer ownership directly upon death.
Understanding the technical details of these accounts usually requires the help of a qualified professional, as it can also vary from one province to another.
Businesses
If you maintain a sole proprietorship over a business, it can be subject to probate. Assets subject to probate here aren’t only limited to the business capital, but also the building, equipment, etc.
Luckily, with the right type of help, you can bypass the probate on your business assets. All you need here is a reliable consultant to set up a reliable business succession plan for you.
Assets with No Surviving Beneficiaries
The majority of assets not subject to probate are items that have designated beneficiaries. In that case, the transfer of assets typically goes smoothly without involving the probate court.
However, there might be situations where the named beneficiaries die, leaving no surviving beneficiaries to receive the assets.
In that case, the items need to go through probate so that the court can appoint an executor to track down relatives and potential beneficiaries.
What Assets Are Not Subject to Probate?
While the majority of items and assets are subject to probate under the previously mentioned categories, there are some instances where the assets can avoid probate and go directly to beneficiaries. Here’s a quick look at them:
Assets in an Inter Vivos Trust
One of the most popular methods to bypass probate is by setting up a trust. This is because trusts are considered separate legal entities even if you maintain your control over them throughout your life.
Since the trust already owns the assets and has designated beneficiaries upon death, there's no need for the probate court to determine who gets them.
Multiple types of trusts can bypass probate. However, not all of them grant you full control of the assets. If you want to maintain control, you should go for a revocable living (inter vivos) trust.
While being one of the best ways to bypass probate, setting up a trust requires expertise to make sure it achieves the goals you’re looking for, which is why you should consider professional help with that matter.
Insurance and Benefits
By default, insurance policies are considered assets subject to probate. This is because the court needs to identify the beneficiaries of the policy upon the holder’s death.
However, in the majority of cases, people would name certain beneficiaries while setting up their life insurance policies. In that case, the beneficiaries get to receive these assets immediately and skip probate when the original holder passes.
The same rules typically apply to certain types of benefits, such as pension plans. However, the named beneficiaries must be alive during the transfer of assets.
Jointly-Owned Assets
It’s common for couples to have joint bank accounts. When one of the account co-owners passes, the contents of the joint account becomes automatically owned by the surviving co-owner, without going through the lengthy probate process.
This applies to all kinds of assets that are jointly owned by two individuals. However, these rules don’t typically apply to business partnerships, as there are usually separate terms in the partnership agreement that indicate what should happen in the case one partner passes.
Joint Tenancy
Joint tenancy is another common way people use to bypass probate. For this method to work, the individuals involved in this agreement should include a right of survivorship clause in the contract. This lets the surviving owner inherit the deceased owner's share automatically.
Naming Beneficiaries in the Will
The primary reason for listing items for probate is to establish the beneficiaries who should inherit the assets of the deceased.
However, if that person designates certain beneficiaries of the assets in their will, the executor doesn’t have to get a probate for those specific items. This includes physical properties as well as other assets like investments and business shares.
How Long Does Probate Take?
This depends on the complexity of the estate, the assets involved and any disputes or challenges. In BC the process typically takes 6-12 months although it could take upwards of several years in certain cases.
Final Thoughts
The probate court handles the legal process of distributing assets after a person passes away. Some items can bypass this time-consuming process, such as items in trust, assets with named beneficiaries, and jointly owned assets.
By understanding how probate works and what has to go through probate, you can also save yourself the additional fees associated with this process.
If you’re interested in finding out more about estate planning and how to smoothly transfer your assets to your beneficiaries, don’t hesitate to contact our experts at Parr Business Law.
