Thursday, 25 February 2016

How to Calculate Probate Fees in B.C.

There are currently no probate fees payable to the B.C. Supreme Court Registry for estates with a value of less than $25,000.  A formula is set out in the Supreme Court Civil Rules to determine the probate fees for estates with gross values over $25,000.  Probate fees in B.C., unlike some other provinces, are a percentage of the estate and can be relatively high.  The probate fee is the rate in effect when the grant of probate is issued.

Here is a summary of the formula for calculating probate fees:
  • Estate worth less than $25,000 - no fee
  • Estate worth over $25,000 - basic fee of $200
  • Estate worth between $25,000 and $50,000 - basic fee of $200 and $6 for every $1,000
  • Estate worth over $50,000 - $14 for every $1,000 of the estate value over $50,000
How do you determine the “value of the estate” for the purposes of calculating the probate fees?  Probate fees are payable on real and tangible personal property of the deceased located in B.C. and intangible personal property, wherever located, that passes to the personal representative (executor/administrator) at the date of death.  The difference is that probate fees are payable on real and tangible personal property in B.C. regardless of where the deceased resided.  Whereas, probate fees are only payable on intangible assets if the deceased was ordinarily resident in B.C.  Real and tangible personal property physically located outside of B.C. are not subject to probate fees.

Here are definitions and some examples of real, tangible and intangible personal property:
  • Real property: any estate or interest in land, buildings, improvements, and fixtures.  
  • Tangible personal property: movable property that has physical attributes and includes vehicles, boats, jewellery, furniture and coin collections. 
  • Intangible personal property: bank accounts, insurance policies, securities, interests in businesses, trusts, etc.
The B.C. Supreme Court Registry calculates the probate fee using the gross values of the estate assets deposed to in the affidavit of the personal representative submitted with the probate application.  For example, for an estate valued at $1,225,700, the total fees would be calculated as follows:

Basic Fee                                                   $200
Probate Fees           
($50,000 - $25,000) ÷ 1,000 x $6      =     $150
($1,226,000 - $50,000) ÷ 1,000 x $14  =  $16,464

Total                                                          $16,814

There is also a shorter way to determine the total fees.  You round the value of the estate up to the next $1,000 as we did above ($1,225,700 to $1,226,000), multiply the result by 0.014 and subtract $350.

$1,226,000 x 0.014 - $350 = $16,814

Given the relatively high probate fees for large estates in B.C., it is important for an estate plan to be properly set up so as to reduce these fees as much as possible.

Tuesday, 23 February 2016

TOP 20 DUTIES OF AN EXECUTOR

Here is a summary of the top 20 duties of an Executor and Administrator (once appointed by the Court).  I thought it would be useful as a checklist for a Personal Representative (Executor or Administrator).  Note that not all of these duties will apply to every estate.

1. Make Funeral Arrangements

The Executor has primary authority to make the funeral arrangements and dispose of the deceased’s remains.  However, in practice, a family generally makes these arrangements together.

2. Identify Beneficiaries and Next of Kin and Notify Them of Their Interests in the Estate

You must obtain a complete list of the names, addresses, and ages (to identify minors) of the deceased’s spouse, children, and beneficiaries named in the Will.  The deceased’s spouse includes common law spouses together for more than two years immediately before death.
You must also give all beneficiaries of the estate a copy of the Will.

3. Prepare an Inventory and Manage the Assets of the Deceased

The Executor will need to conduct a physical search for cash, securities, jewellery, important documents, and other valuables and arrange for their safekeeping.   He or she cannot make personal use of estate assets unless it is impractical (i.e., spouses who shared a vehicle).

You will also need to prepare a complete inventory of the estate assets.  Estate assets include personal effects, furnishings, artwork, jewellery, bank accounts, securities, bonds, and real estate that are in the name of the deceased.  They do not include assets held in joint names or assets with a named beneficiary other than the estate.

The Executor will need to give all assets a value as at the date of death.  These values will later be used to calculate the probate fees that apply to estate.

4. Search any Safety Deposit Boxes and Make a List of the Contents

The bank will not allow an Executor to remove the contents until a grant of probate is obtained.

5. Secure the Deceased’s Home and Arrange for the Protection of Vacant Land and Buildings

You will need to advise the apartment manager or police, change locks, and obtain a vacancy permit, if applicable.

6. Notify Insurers, CPP, Old Age Security, Utility and Telephone Companies, ICBC, Passport Canada, CRA and Canada Post

Check for expiry dates on insurance policies and ensure there is adequate insurance for property, vehicles, and valuables.

Canada Post requires a notarially certified copy of the death certificate, a statutory declaration and an application form provided by them.

7. Notify Deceased’s Banks and Financial Institutions

You should cancel the deceased's credit cards.  Banks or financial institutions may release money for funeral and probate fee expenses prior to the grant of probate.  You can discuss this with the bank at this time.

The Executor may be able to open an estate bank account for limited purposes.  However, some banks will not open one until a grant of probate is obtained.  An Executor may want to consider an application for an Authorization to Obtain Estate Information under the Supreme Court Civil Rules.

8. Arrange to Pay Ongoing Debts and Expenses of the Deceased and Owed By the Estate

You can either make arrangements to pay for mortgages, leases or other contracts or take steps to postpone payments until the estate can raise sufficient funds.

9. Advise Joint Tenants of Deceased's Death

If there is jointly owned property, advise the other joint tenant of the deceased's death.  The surviving joint tenant can take care of transferring the title.

10. Notify Designated Beneficiaries of Deceased's Death

If there are any life insurance policies, RRSPs, RRIPs or any other assets that name a beneficiary other than the estate, notify that beneficiary of the deceased's death.

11. Arrange to Collect any Rent, Loans, and Other Payments Owed to the Estate

12. Apply for Canada Pension Plan Death Benefits, Life Insurance, Employment Pensions, and Any Other Benefit Payable to Deceased’s Estate.

An application for death benefits can be obtained from the CPP website.  You must be aware of the time limitations for taking this step.

13. Arrange Interim Management of Business Assets

14.  Continue Lawsuits on Behalf of the Estate

If there is a lawsuit against the estate, you should hire a lawyer and continue the lawsuit on behalf of the estate.

15. Apply for a Grant of Probate or Administration

16. Keep Financial Records

The Executor has a duty to keep records and be ready to account to beneficiaries and creditors of the estate.  The records must particularize estate income and expenses that have been incurred.

The Executor is entitled to reimbursement from estate for all reasonable expenses incurred in managing the estate.  He or she needs to keep good records in case the expense is later challenged by beneficiaries.

17. Advertise for Creditors and Claimants of the Estate

You may publish a notice once in the Gazette requesting claimants against a deceased's estate to present their claim within a specified period (not less than 30 days from publication).

18. Prepare and File the Income Tax Return of the Deceased.

The Executor must pay the taxes before paying the beneficiaries.  He or she will need to obtain a Canada Revenue Agency Tax Clearance Certificate.

19. Set Up and Administer Any Trusts Under the Will

20. Distribute the Deceased’s Property In Accordance With the Will or With Intestacy Rules

Whether to act as an Executor or Administrator is an important decision.   This should give you a general idea of the duties involved in taking on this role.

Friday, 5 February 2016

How to Determine How Much an Executor Will Be Paid?



Most people know that an Executor's can charge a fee for administering the estate but few know how to determine the amount.  If the Will sets out a specific amount for the Executor's fee, that is the amount that he or she will receive.  The Will needs to be reviewed to determine the basis for the Executor's fees.  It may be expressed as a dollar amount or as a percentage of the estate and is generally greater than the cost of out-of-pocket expenses.

The Will may also state that an agreement was signed with a trust company.  In this case, the will-maker will have agreed on a fee schedule with the trust company at the time the Will was made.
If the Will is silent as to the Executor's fees and there is no other agreement on fees (which is the case with most Wills), the Trustee Act sets out the following rules: 
  • 5% of the gross aggregate value of the capital of the estate (i.e., the realized value of the original assets without deduction of the value of any mortgages against assets and the value at the date of distribution of any assets distributed in their original form);
  • 5% of the income earned during the administration; and
  • annual care and management fee of 0.4% of the average market value of the assets.
If an Executor receives a legacy in the Will, it is presumed that this will take the place of Executor fees.  But, if the gift is a residual bequest (a gift of whatever is left after specific gifts are given), this presumption will not apply and the Executor is entitled to both the gift and fees.  The presumption also does not apply if the Will states that the Executor may take both the gift and fee.

The Executor will need to get the beneficiaries to approve the Executor's fees.  If the Executor is unable to get the beneficiaries to agree to the fee, he or she will have to apply to Court.  The Court generally will allow less than the maximum or 3% of the estate value as well as a care and management fee.  What the Court orders will depend on the size of the estate, the care and responsibility involved, the time occupied in the administration of the estate, the skill and ability displayed, and the success achieved in the final result.  The costs incurred in seeking court approval are payable from the estate.

In this regard, it's best to include a clause in your Will stating the Executor's fee so it will not lead to confusion or litigation down the road.

Wednesday, 3 February 2016

How to Value the Assets of an Estate

Executors and Administrators will be asked to prepare an inventory of assets and liabilities which will later be listed in an Affidavit that is filed with the Court.  How do you know what value to give these assets?

There are two important principles to consider when valuing these assets.  First, you have a duty to be accurate and fair to the beneficiaries.  Giving artificially low values to keep probate fees lower might get you in trouble since you will need to swear or affirm the truth of those values.  Second, the inventory will be used by a number of parties, including accountants, creditors, beneficiaries, tax advisors, and the judge.

The Affidavit that is filed with the Court will include only the deceased's assets that form part of the estate.  It does not include assets that pass outside of the estate, such as assets held in joint tenancy, RRSPs and RRIFs with beneficiary designations, insurance proceeds, and survivor benefits under the Canada Pension Plan.  Only assets that form part of the estate are subject to probate fees and claims against the estate.

In general, the date of death is the date for valuing assets.  For real estate, the most recent assessment from BC Assessment authority is usually acceptable.  However, the personal representative will want to hire a real estate appraiser if the assessment is quite a bit lower than market value as there may be tax issues if there is a large difference between the reported value and the sale price (i.e., capital gains tax).

For assets that are difficult to value, like jewellery, artwork, vehicles, antiques, and other valuable collections, the personal representative should consult a professional appraiser for an evaluation.  It is important for a personal representative to be as accurate as possible in assessing the value of estate assets since it will be used to properly assess both probate fees and taxes.