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“Probate should apply to his home and to his non-registered investments and would cost about $29,000 today. However, since the value of his home and investments should continue to rise in value, it will likely cost his estate more in future.”

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Many people add their children’s names to their home and investments to avoid probate, Rempel said. But the general rule of thumb is that if your home is worth more than $1 million or if your investments are worth more than $250,000 to $500,000, the possible tax costs and risk of creditors or divorce settlements for your children are usually more prohibitive than probate fees, he said.

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“Frank’s home and non-registered investments are worth too much for this to be a good idea. There is a risk that the Canada Revenue Agency (CRA) will think he is giving his children part ownership of his home, making this a taxable transaction. He could write a letter stating he is adding their names for estate planning reasons only, but CRA might not accept that. Income tax costs would be far more than probate fees.”

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Since the value of Frank’s investments exceeds $250,000, adding their names to his non-registered investments would create a “bare trust” under the new CRA rules and he would have to file a T3 trust tax return and special schedule every year, Rempel said.

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There are different types of trusts, Rempel said. “Frank could use an ‘inter vivos trust’ or a ‘bare trust’ but neither makes sense for his home. “If he owns his home until death, the principal residence exemption means there will be no income tax on it. However, if he transfers it to a trust, there would be a capital gains tax from now until his death, which is likely to be a lot more than probate.”

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As for his non-registered investments, Rempel said transferring them to a trust would avoid probate but is not likely worthwhile until they grow to $1 million or more.

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“Creating a trust costs between $5,000 and $10,000 in legal fees to set up. Then a trust income tax return must be prepared by an accountant every year, which likely costs $1,000 or more. Probate fees on $700,000 of non-registered investments is just under $10,000.”

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Whether Frank stays in his home or moves to an assisted living residence should be a lifestyle decision and not based on trying to save probate costs, Rempel said.

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“Selling his home may not really save him probate fees anyway. He would avoid probate on his home but the proceeds would be added to his non-registered investments, which are subject to probate,” Rempel said. “If he does this, then he would have more than $2 million in non-registered investments, so creating an inter vivos trust would make sense.”

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“If he is confident in his investments and his children are less knowledgeable about investing, it can make sense for Frank to recommend transferring his investments ‘in kind’ to his children instead of in cash, but this is something his children would have to do,” he said.

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As for Frank’s registered investments, “the RRIF does not have to be fully withdrawn by age 90,” Rempel said. “The minimum RRIF withdrawal rises every year until age 90 when it is 20 per cent a year. You can keep your RRIF indefinitely. They are deemed cashed in on death and taxes withheld.”

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*His name has been changed to protect his privacy.

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