It’s not unusual for people to be concerned about limiting what they must pay in “estate taxes”. In British Columbia, there is no such thing as an estate tax, but there are probate fees which must be paid if probate is required.
Most people often don’t understand the distinction between probate fees and estate taxes.
Probate fees are charged by the government according to a schedule which generally amount to 1.4 percent of the value of an estate. For example, , an estate worth $1,000,000 would owe $14,000 in probate fees.
In addition to probate fees, capital gains tax – a true tax – may be payable because of “deemed dispositions” (should be explained or referenced as it’s a legal term that users will not know about or understand)of property on the death of the owner.
While we understand the desire to avoid paying probate fees – most people want to leave their money to the people or charities they care about – the reality is many often make poor planning decisions in the mistaken belief that such decisions will avoid probate fees. This can be problematic for two reasons:
- Sometimes, the decision has negative financial or tax implications for the estate or the intended beneficiaries – and those implications can be worse than probate fees.
- As well, depending on the mechanism the deceased chose, it can result in disputes among beneficiaries and can damage or even destroy existing family relationships.
Tax planning carries similar considerations – and consequences. There are tools available to help with tax mitigation, such as an Alter Ego Trust or Joint Spousal Trust, for example. However, each tax mitigation tool has its own requirements along with its own pros and cons.
- Individuals who are 65 years of age or older may want to consider creating an Alter Ego Trust or a Joint Spousal Trust. Our team of advisors frequently work with our clients’ tax accountants to structure and implement any trust planning that may be recommended.
- As well as avoiding probate fees, Alter Ego Trust or Joint Spousal Trust planning offers other advantages, including allowing for the continuous management of trust property despite the individual’s death, maintaining a greater degree of privacy over affairs, reducing the risk of estate litigation arising from wills variation claims and providing for a means of managing trust assets even if an individual becomes mentally incapable.
If you feel trust planning would be of value and benefit in your family situation, contact one of the estate planning lawyers at PLLR today at 604-276-2765 or fill out the form below.