Some Canadians will go to great lengths to avoid probate fees and to reduce taxes applied to their estate. Indeed, estate planning strategies such as adding an adult child to the title of primary residence or a cottage, or as a joint owner of a non-registered account, can unknowingly expose you or your child to potential costs and unnecessary risks.

Before you tie yourself in knots trying to avoid probate fees, let’s answer some important questions about what exactly probate is, which assets are subject to probate, and what you can do, if anything, to reduce or avoid them.

We’ll also look at what people get wrong about probate, along with the potential pitfalls that can be caused trying to avoid probate – at the expense of good tax, financial, and estate planning.

Here are some of the questions I am getting asked lately from clients:

Q: What are probate fees?
Probate fees in Canada refer to the costs associated with the legal process of validating a deceased person's will and distributing their estate as per their wishes. These fees are usually payable to the provincial or territorial government where the deceased resided, and they are calculated based on the value of the assets within the estate. The fees cover administrative expenses and court procedures required to ensure a smooth transfer of assets to beneficiaries while complying with legal regulations.
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Q: Which assets are subject to probate fees?
A: When an asset is left to your estate, it may be subject to probate. Certain assets that allow you to name a beneficiary may pass outside your estate – for example, RRSPs, TFSAs, and life insurance policies where you’ve named an individual as the beneficiary.
If assets are held in joint tenancy with rights of survivorship, or owned by a trust, they may bypass probate as well. Other assets like personal non-registered accounts, bank accounts, personal effects, or real estate do not allow you to name a beneficiary, so in many cases those assets will be part of your estate. 

It’s worth noting that while assets can pass to your surviving spouse without tax, that doesn’t mean the asset won’t form part of your estate.

Unintended consequences
Q: What do people get wrong about probate?
A: Probate is an important process in winding up an estate. It validates that your will is current and indemnifies people and institutions that hold your property from giving it out to the wrong beneficiaries. Often, planning is done with the intention to avoid probate fees. And often, that planning has unintended consequences. 

For example, adding an adult child as a joint owner on your bank account is advertised as a way to allow the bank account to pass to the surviving owner, outside of the estate. But it’s not that simple – adding a signer to an account might trigger resulting trust rules, where the asset is deemed to be held in trust for the estate.

How to reduce probate fees
Q: So, what can people do to help reduce probate fees?
A: Where appropriate, name individuals as beneficiaries on allowable accounts – RRSPs, TFSAs, and life insurance policies for example. But be aware that naming beneficiaries can have unintended consequences, like a disproportionate inheritance for certain beneficiaries.

For higher-net-worth Canadians, using trusts may be appropriate. These are complex structures that come with other costs, but assets held in trusts generally do not go to your estate and are therefore not subject to probate.

Notes about gifting money while you’re still alive:

There is no gift tax in Canada, though gifting money to a spouse can have tax consequences. Gifting to adult children who are beneficiaries of your estate keeps that money away from probate and allows you to see your heirs benefit from the gift while you’re still alive.

Q: What are some of the unintended consequences of adding your child(ren) to the title of your house, cottage, or non-registered account?
A: Moving accounts and real estate to joint ownership is a popular strategy with the masses for avoiding probate. People do this because, when an asset or account is owned joint with the right of survivorship, the account will bypass the estate and the holdings will not be subject to probate. The problem is, while simple to do, joint ownership opens up a minefield of potential issues. It's worth noting that, people almost never get proper legal, tax, or financial advice before doing this – which can lead to many issues.

Adding your child(ren) to the title of your primary residence
Q: What about adding your child(ren) to the title of your primary residence?
A: It’s one of the most common questions, as the primary residence is usually the largest asset left behind by the parent. A primary residence for an individual or married/common-law couple is exempt from capital gains taxes, so a parents’ home is exempt, and a child’s primary residence is exempt. If the child is put as joint owner on the parent’s home, the parent’s 50% ownership of the home remains tax exempt (and capital gains up to that point is of course exempt), but the child then partially owns a second property, and that share of the property is not exempt.

Q: So, what should a parent do instead?
A: In general, don’t make the primary residence joint with your child(ren). Expect it to flow through your estate and expect to pay probate fees on that. Otherwise, if you plan on diverting from that path, only do so after consulting an estate planning lawyer – not because you read online that it’s a good idea or because a friend or family member suggested it

Final Thoughts

It’s a complicated topic that gets brought up a lot, and there is a lot of misinformation floating around online and at the water cooler on how to avoid probate. The key takeaways are that, in most cases, probate fees are minimal, and probate ensures the proper disbursement of your assets after you die. There’s no need to tie yourself in knots trying to avoid probate fees if it means opening yourself and your child(ren) up to other potential issues.

If you do have a complicated estate or specific wishes you want carried out, get proper advice from an estate planning lawyer and a CERTIFIED FINANCIAL PLANNER, like myself, before you start adding children as joint owners and beneficiaries of assets and accounts. That includes proper documentation declaring your intentions behind these actions. Don’t leave important matters up for interpretation.

Everyone’s new favorite financial term is generational wealth. People use the buzz phrase, negatively or positively depending on their purpose, to describe a level of wealth significant enough to improve not just your life but the lives of your heirs, their heirs, and maybe your entire lineage to come. In other words, people want to be so rich that their kids are automatically rich too. 

When it comes to building generational wealth in the traditional sense, there is no more pressing topic than real estate and it’s surge in prices over the last 5 years. I have had countless conversations with clients that their biggest fear is that their kids will never be able to own a home. This is a real fear and one that has been exacerbated since 2020. Will the younger generations be able to buy the house with the white picket fence without the help of mom and dad? I don't have a great answer, nor do I have a crystal ball.

Unfortunately, statistics indicate that generational wealth (by that typical, traditional definition) will not exist for most Canadians. According to Investopedia , more than 55% of inheritances between 1995 and 2016 were under $50,000. What that amount of money does for someone is subjective in nature, of course. But from an objective standpoint, I can confirm it’s unlikely that a five-figure inheritance will significantly alter  the long-term socioeconomic standing of any family. 

So, where does that leave the dream of generational wealth? I think we can all agree that  what we all want for our children, and their children, is to be better off than we were. That's the ultimate dream. We know money helps, but what if we also consider other definitions of 'wealth' to ensure the next generation will have more? Perhaps generational wealth could be deeper than just assets changing hands. In the broadest sense, what if we think of it as the lift, the boost, the confidence that comes from digesting and implementing the lessons we are taught by previous generations?

It's not that I don't believe accumulating assets for the benefit of your heirs is admirable. I certainly do. It often takes a lot of hard work, tremendous discipline, and significant sacrifice to create better outcomes for those on the receiving end of your wealth. But for most people, the true wealth being transferred is never a portfolio of stocks or a piece of property. Full disclosure, I’ve received no sizable inheritance in my life. This isn't a clickbait article where I claim to have built an empire from sheer determination with a little asterisk where I neglect to mention a $4 million loan from my rich uncle. Instead, I'd like to tell you about my experience with another version of generational wealth in the form of inheriting a blueprint for a great life.

My grandfather, Alvin, was the first Canadian Cab driver in Guelph and bestowed on me an example of what hard work and passion looks like from a very young age. Were my grandparents wealthy by financial metrics? Not quite. But they were incredibly rich through their work ethic, their friendships, their family and their devotion to their church. It's with pride in their example that I tell you I certainly inherited those characteristics. 

What my grandparents and parents have given me during their lifetime is greater than any monetary inheritance they could leave behind. Leading with their example of support, from never missing a sporting event to their consistent work ethic, my parents have also given me our own version of generational wealth. I'm proud to tell you my parents have just celebrated 44 years of marriage which is something I cherish as a witness during my years as their son, especially now as I prepare to get married myself.

Generational wealth can also take the form of learning to do things differently than the way you were taught by prior generations. My peers and I are structuring our lives and goals a little bit differently, and I'm encouraging clients to consider new mindsets as well. What if it's not just about working tirelessly for 40 years only to thrive once retired? Too often I've seen clients say, “One day we will...” only for that one day to never come. Life is incredibly short and money can be a resource to be used to enjoy the time you have today. Instead of only thinking about how much we can leave to our kids, they also benefit from being with you when you enjoy what you have worked so hard to accumulate over the years. 

The beautiful thing about wealth is that you can define it on your own terms.

So, how could you expand your definition of generational wealth? The experiences, lessons, tools, passions, and even the cautionary tales that are passed down to us matter. In many ways, they matter more than just the money version. This kind of wealth provides future generations the ability to do more than just spend. It provides them with the ability to change their lives.

Here's another idea; I'd be honoured if you decided sharing Think like An Investor with your friends, family and colleagues is a form of wealth transfer. We can all learn from each other and expand our definition of wealth.