How to Avoid Probate in Canada

Because Canada has no estate tax, there is less reason to avoid probate than there is in countries that do. Nevertheless, because probate fees can be significant expenses, many people are looking for ways to avoid probate. One of the ways this can be done is by establishing a family trust. Although a family trust also involves certain expenses, if the estate is fairly large it can be well worth it.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• Computer
• Internet access
• Printer
• Financial records

1. As the person who establishes the trust (the settlor), you must first decide which assets you want to contribute to the trust. Normally this is a small amount at first. You can contribute cash, real estate or other property and gradually add assets as you get older. If you are 65 or older, you might want to consider a large initial contribution.

2. Name the trustees. The trustees decide how the assets of the trust are to be distributed among the beneficiaries. Although most jurisdictions allow the settlor to become a trustee, a trustee who is not a family member should be appointed as well in order to prevent the trust to be considered fraudulent in the event of litigation or a government audit.

3. Name the beneficiaries of your family trust. Beneficiaries can be anyone in your immediate or extended family. Beneficiaries have no say in how the trust assets are distributed. This authority lies with the trustees. If the trust deed requires the unanimous consent of the trustees for any distributions, you will have veto power over them.

4. Have an attorney draft the trust deed for you. The trust deed is the foundational document of the trust and must set forth trust assets as well as the name of the settlor, the trustees and the trust beneficiaries. It should also spell out the authority and duties of the trustees; clarify trustee voting rules and regulations concerning the investment of trust assets; and establish financial management rules. The legal execution of this document (the notarized signature of the settlor) creates the family trust.

5. Sell your assets to the trust on a gradual basis.You can then forgive the trust's debts to you through a signed document.

6. Cause the family trust to lease to you any assets, such as a family home, that you want the legal right to use. You should pay a leasing fee for anything you lease from the trust. This procedure will allow you to fund the trust with cash while keeping the legal right to use its assets.

Tips & Warnings

• If your estate is small, the expenses of maintaining a family trust may exceed probate fees. In that case it may be better to choose another method for avoiding probate such as inter vivos gifts, a joint spousal trust or joint ownership of assets.
• Remember that a family trust trustee is not bound to respect the settlor's wishes in the way that an estate executor is bound to respect the terms of a will. A trustee need only act reasonably in the best interests of the beneficiaries. If you have specific ideas about the distribution of the trust assets, take care to choose a trustee who you are confident will vote with you.

Resources

• Other ways to avoid probate in Canada

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