Rais­ing red flags on pro­bate fees

Es­tate taxes can lead to joint bank ac­counts — and the se­ri­ous risk of fi­nan­cial losses

Ottawa Citizen - - YOU - WANDA MOR­RIS

Have you ever held a belief for a long time — then re­al­ized it was un­true?

Af­ter years hold­ing mis­taken be­liefs, I’ve learned ex­er­cise does lit­tle to shed weight (al­though it does pro­mote health). And that IQ tests aren’t a re­li­able mea­sure of in­tel­li­gence, as re­sults are heav­ily in­flu­enced by the test taker’s cul­ture.

Chang­ing a belief can be dis­ori­ent­ing for an in­di­vid­ual. But it ap­pears even more so for a pro­fes­sion.

Decades ago, ul­cers were treated with bed rest and bland di­ets. In 1982, Aus­tralian physi­cians Robin War­ren and Barry Mar­shall found ul­cers were caused by the Heli­cobac­ter py­lori

(H. py­lori) bac­terium, not stress or diet.

The med­i­cal pro­fes­sion was slow to catch on. Fif­teen years af­ter the dis­cov­ery of H. py­lori, the U.S. Cen­ters for Dis­ease Con­trol and Pre­ven­tion launched a sweep­ing cam­paign to ed­u­cate pro­fes­sion­als and con­sumers alike, prompted by a U.S. study that re­vealed nearly 90 per cent of suf­fer­ers blamed ul­cers on stress or worry, and 60 per cent be­lieved diet was also a fac­tor.

Au­thor­i­ties, it seems, fail to act on proven in­for­ma­tion, and not just when it comes to our health.

Take pro­bate fees, for in­stance. Most prov­inces levy pro­bate fees that far ex­ceed the cost of pro­bat­ing an es­tate — de­spite re­peated ex­am­ples of pro­bate fees lead­ing to el­der abuse.

A pro­bate fee is paid by an in­di­vid­ual’s es­tate to val­i­date the will and the named ex­ecu­tor, giv­ing the ex­ecu­tor the clear author­ity to act. Each prov­ince sets its own fees, and they vary con­sid­er­ably.

In Al­berta, an es­tate with $1 mil­lion of as­sets pays a pro­bate fee of $525, in Que­bec the fee is less than $100. In B.C., Saskatchewan and On­tario, the pro­bate fee (called an es­tate ad­min­is­tra­tion tax in On­tario) for a mil­lion-dol­lar es­tate ranges from $10,000 to al­most $15,000.

If Al­berta and Que­bec can pro­bate any will for $525 or less, then B.C., Saskatchewan and On­tario are us­ing pro­bate fees as a tax — a tax that is un­war­ranted and, in some cases, leads to ex­treme hard­ship.

In the grand scheme of things, an amount such as $15,000 on a $1-mil­lion es­tate is pretty small pota­toes. What’s more, a lawyer can struc­ture an es­tate to avoid or min­i­mize pro­bate fees, so these fees are pri­mar­ily paid by those who are not prop­erly ad­vised.

By seek­ing to avoid pro­bate fees, some in­di­vid­u­als lose ev­ery­thing. Typ­i­cally, they’ve been en­cour­aged to turn their pri­vate bank or in­vest­ment ac­counts into joint ac­counts (usu­ally with an adult child), ex­pos­ing them­selves to need­less risk.

A joint ac­count, whether used for bank­ing or in­vest­ment, is held in two or more names, and ev­ery per­son named has com­plete ac­cess to the as­sets in that ac­count.

Cre­at­ing joint ac­counts has led to un­in­tended fi­nan­cial losses for the orig­i­nal owner of the as­sets.

Some­times fi­nan­cial losses arise due to a mis­un­der­stand­ing. Even though they were added to fa­cil­i­tate a trans­fer of funds when their par­ent dies, adult chil­dren may be­lieve the funds are theirs to spend. And they do.

Other times, losses are caused by di­vorce or busi­ness fail­ure. If an adult child named to a joint ac­count suf­fers a mar­riage break­down or busi­ness loss, the as­sets of the par­ent may be in­cluded in the di­vorce set­tle­ment or as part of the se­cu­rity for the bank loan.

And in some cases, the adult child de­lib­er­ately abuses the par­ent’s trust and clears out the joint ac­count, leav­ing their par­ent in dire fi­nan­cial straits.

There is a clear les­son here: don’t cre­ate a joint ac­count sim­ply to avoid pro­bate fees.

Even at their high­est, these fees are a small per­cent­age of an es­tate.

It’s not worth jeop­ar­diz­ing your se­cu­rity to save a few dol­lars. If your es­tate is large enough that pro­bate fees are a con­cern, see a lawyer who can help you safely min­i­mize them.

Aware­ness and ed­u­ca­tion about the risks of joint ac­counts are im­por­tant, but they are not enough.

To pro­tect se­niors, we must heed the lessons of his­tory. Pro­bate fees may lead to joint ac­counts, and joint ac­counts may lead to el­der abuse.

The so­lu­tion?

Limit pro­bate fees to the small fixed amounts ac­tu­ally nec­es­sary to pro­bate an es­tate. It’s well past time for all our pro­vin­cial and ter­ri­to­rial govern­ments to fol­low the lead set by Al­berta. It’s time for high pro­bate fees and the re­lated el­der abuse to dis­ap­pear.

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