“The Bare Necessities” of Probate Planning for Real Estate   

January 27th was the second half of a jam packed two part eState Academy’s webinar “The Bare Necessities” of Probate Planning for Real Estate   

So, wondering what you missed? Here are some highlights:

  1. In most cases, if your client dies owning real estate, the executors and trustees will likely need probate to sell, transfer or otherwise deal with the real estate (yes…even with a Will). 

  1. There are a couple of ways that a gift of real estate can be made on death either by arranging ownership while alive or leaving it in their Will. 

  1. One option is using a right of survivorship which is gifted during life. This is achieved by adding the gift recipient as a joint owner on title to the property.  This works if the client wants the recipient to receive full ownership of the real estate on death.  There are multitude of issues with this, the most important are a loss of control, income tax implications and opening up the property to creditor claims.

  1. Making a gift of real estate through your Will is often more desirable than adding a joint owner.  The downside is the triggering of probate tax in many cases. However, there are two major ways that real estate can be gifted through a Will and still not attract probate tax:

  • the legal title to the property is owned by a bare trustee OR 
  • the property is subject to a “first dealings exemption” 

Just remember that in almost all cases, you need to use multiple Wills in both situations or it likely won’t work to avoid probate tax.

  1. Using a bare trustee means that you have the real estate legally owned by someone other than the beneficial owner (a corporation is ideal here). The legal owner is registered on title as the owner of the property and acts as bare trustee for the true beneficial owner.  On the death of the beneficial owner, since the legal owner is a corporation that never dies, the property can generally be dealt with without the need for probate. The property must be distributed according to the Will.   If done properly, it is possible that the principal residence exemption is not lost, there is no triggering of a disposition for income tax purposes and the beneficial owner still maintains complete control over the property during their lifetime and can dispose of it anyway they like on death..

  1. For certain real estate that was bought when the Registry System was still around, there is another way of avoiding probate tax. The “first dealing exemption” allows for a transfer of property without probate.. To qualify for the first dealings exemption the following conditions must be met:
  • Deceased got the land when it was under the Registry System
  • After getting the land, it was converted to the Land Titles System.
  • The land is identified as “Land Titles Conversion Qualified” and
  • No land dealings have disqualified the land from this exemption.  

Do a title search to check if the property qualifies!

  1. What type of “dealings” won’t disqualify land that would otherwise qualify for the first dealings exemption:
  • Discharges
  • Notices
  • Leases
  • Charges
  • Survivorship Applications
  • Certain Non-Arm’s length transfers for no consideration…use caution here (see Bulletin No.2015-05- Minister of Government and Consumer Services).  

  1. When you are doing this kind of probate planning for your client, multiple Wills are almost always necessary to achieve the client’s goals. The client has one cover assets requiring probate (a Primary Will) and one to cover assets that don’t need probate e.g. the Bare Trust owned real estate or first dealing exempted real estate. (a Secondary Will)..in this way probate tax will be calculated based only on the value of the assets dealt with under the Primary Will which is submitted for probate leaving the real estate to be dealt with under the Secondary Will, probate tax free. 

If you want to learn more about this topic, please follow the link below for your own complimentary copy of the webinar and slides


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