Careful planning will reduce the fees paid by your estate.

Planning one’s estate is important because it helps minimise fees and taxation and makes certain that your assets go to your family, friends or charitable organisation in accordance with your wishes thereby avoiding headaches and problems for those left to settle your estate.

There are several fees that come into play when settling one’s estate but it is probate fees that seems to g

et everyone excited. People seem to ignore legal fees and executor fees which together can dwarf probate fees.

Probate fees are calculated on the value of the estate. The first $50,000 is taxed at $250, the balance is taxed at 1.5%.

For example a $500,000 estate could expect to approximately $7500 in probate fees. But the estate could also spend $10-$15,000 in legal fees and $25,000 in executor fees.  Executors can charge what is considered Executor’s compensation is based on provisions set out in provincial trustee legislation which generally is what is “fair and reasonable” – visit Executors fee guidelines for details.

The trick to efficient estate planning is to by-pass the estate all together.

The most common way to by-pass the estate is to jointly register property and accounts with right of survivorship. This is common between spouses. Where is becomes tricky is when parents jointly register their property or accounts with children or other non-spouses. Expert advice should be sought prior to this change. Changing the ownership could result in unforeseen taxation or unneeded risk.

Naming a beneficiary is the next best way to by-pass one’s estate and avoid fees. Life insurance policies and RRSPs and RRIFs allow you to name a beneficiary. There are tax-implications that need to be understood when naming a person other than your spouse as the beneficiary of your registered accounts. The registered funds will be taxed as income in your final tax return and the estate will need cash to pay any outstanding tax.

Life insurance companies offer another great way to by-pass one’s estate and that is the use of segregated funds which are not available through mutual funds, banks or trust companies.