However, a tax lawyer says avoiding probate fees by transferring titles away from the testator before they die is not hard
As the old saying goes, the only things certain in life are death and taxes.
But professional help and planning ahead can go a long way in dealing with taxes that must be paid following a death.
For Nikki Rudachyk, partner at McKercher LLP in Saskatoon and a member of the Canadian Association of Farm Advisors, taxes are not something to be afraid of when planning for death and what is going to happen to property and assets, she says.
Saskatchewan is one of the least expensive provinces in Canada when working with probate, and a lot of the time, it is easier to work with probate than trying to work around it.
“People who tend to try to avoid probate end up spending more money and time and creating more complications than otherwise just going with the flow and having their executor obtain probate at the end of the day,” says Rudachyk.
Of course the conversation can be difficult to have but prior planning and communication can save headaches for the testator and their beneficiaries with everyone knowing what they are getting into, says Rudachyk.
“We’re making sure that the wishes are followed the way that the individual wants them to, to be followed at the end of the day. And, you know, we’re not trying to get complicated to avoid this scary thing called probate because it’s not a bad thing. It’s not a difficult thing. It’s not an expensive thing.”
Anne E. Hardy, who works in her own law office in Saskatoon disagrees. Avoiding probate fees by transferring titles away from the testator before they die is not difficult, she says, especially if the land is being transferred to the person who would eventually own the land anyway.
Probate fees and land transfers are comparable in price, says Hardy, but there are still issues to watch for.
Will the person having the land transferred to them own the property or are they supposed to be holding it in the name of the estate? Is joint title with the testator and their beneficiaries an option? Does the title holder have debts that will impact the titleship of the land?
No one knows how long it will be from the time they make their will to the time they die, so these decisions must take that into account.
Especially when doing some prior planning of a will, planning for the unknown future is a holistic, ongoing process, says Rudachyk.
Transferring property to the executor to avoid paying probate tax upon death could create more problems with accessing retirement assets, as well as creating possible fighting between family members, so steps must be taken to avoid these issues.
“With the house or other property, you can create tax implications if it’s not done properly,” says Rudachyk.
In some instances, multiple children could have their names on the title, says Hardy, which can create some inconveniences. They will all have to agree on decisions relating to the land and together sign any paperwork involved in the sale of the property, she says.
Planning with a good lawyer ensures that everything is taken care of in the proper way. While there are taxes upon death, there could also be potential liabilities when dealing with passing on property, like farmland. With prior planning, that can be dealt with before it is passed on for beneficiaries to deal with, says Rudachyk.
“Potential tax liability depends on the individual circumstances. We could be looking at environmental liabilities, you could have a very contaminated site, and consideration needs to be made as to where that’s going to go or if it’s going to be dealt with prior.”
Financing of the land can also cause problems down the road that can be a shock to family members who aren’t aware of the situation.
“Are they leaving that debt to their child as well? They want to leave the land to one of their kids, but then there’s no cash to pay off the financing that’s secured on the lands. ”
If one child out of a multiple sibling family is taking over the farm from their parents, what will that transfer look like and how is it going to be done with all the children in agreement?
Answering these questions is why succession planning is important for farming families, says Hardy, and why it is important that people address the issues while they are still able.
“There are children who have been farming with their parents for years without really having anything in their name. And then that causes problems if there isn’t a will that sets things up properly,” says Hardy.
No matter what decisions need to be made, planning for death and taxes early can ensure that everyone has a say in the future whether they are alive for it or not.
This article should not be taken as tax or legal advice and readers should consult with their lawyer, accountant and other professionals before implementing any of the approaches discussed therein.