The straightforward, back-of-the-envelope wills of the past no longer suffice for the intricate maze of modern assets and family structures. Today's estates include not only tangible property but digital assets, and an increasing share of families are blended — each bringing unique challenges. A central piece of contemporary estate planning is understanding which assets pass through a probated will, and which can be arranged to pass outside it, because probate fees are computed on the total value of the assets passing through the will that is probated.
Multiple wills
In the Canadian context, employing multiple wills is a prevalent and lawful strategy to reduce probate fees. The approach involves preparing separate wills for assets that do and do not require probate:
- A primary will encompasses assets that demand probate, such as real estate and certain financial accounts.
- A secondary will includes assets that bypass the probate requirement, such as shares in privately held companies, artwork, and jewelry.
By segregating assets into distinct wills, an individual can ensure that only the assets needing probate are subjected to probate fees, which can lead to substantial savings for the estate and beneficiaries. Probate fees have escalated over the years, which makes this segregation a meaningful planning lever for owners of private-company shares in particular.
Testamentary trusts
A testamentary trust is created on the death of the testator and is set out within the will itself. It is a vital instrument for the controlled and managed distribution of assets to beneficiaries, offering an organized approach to distribution along with additional protection and potential tax advantages. Used alongside multiple wills, a testamentary trust lets the testator dictate the terms of distribution — for example, providing structured support for grandchildren's education while keeping those assets protected from creditors and legal claims.
Passing assets outside the will
Several categories of asset can pass to beneficiaries outside the will entirely, bypassing probate:
- Jointly owned real estate. When property is held in joint tenancy, the surviving joint tenant automatically acquires the deceased's interest, bypassing probate. It is vital that the title documents correctly reflect the joint tenancy, and each province has distinct rules, which makes legal counsel important here.
- Joint bank accounts. Jointly held accounts can pass to the surviving account holder outside the will, providing liquidity for immediate expenses — though this poses risks if the joint account was not intended to be a gift to the survivor.
- Registered plans with named beneficiaries. RRSPs, RRIFs, and TFSAs commonly allow a named beneficiary; on death, the assets pass directly to that beneficiary and avoid probate.
- Life insurance. Policies can be structured to pay benefits directly to a named beneficiary, bypassing the will and probate. Beneficiary designations should be reviewed and updated regularly so the intended parties receive the benefits.
- Trusts. Assets held within an inter-vivos (living) trust are not part of the deceased's estate and pass outside the will, with the trust's terms dictating distribution.
Gifting during lifetime — and the attribution trap
Gifting assets to beneficiaries while alive is another way to reduce the size of the estate and the probate fees that follow. Canada does not impose a gift tax, which allows an efficient transfer of wealth — but gifts of capital property may trigger a deemed disposition and capital gains tax, so the tax consequences need to be understood first. The main pitfall is the attribution rules: where assets are gifted to a spouse or minor child, income or gains from the gifted property can be attributed back to the donor, negating the intended benefit.
There are workarounds. One is to lend rather than gift the asset, charging interest at the prescribed rate, which avoids the attribution rules. Another is to gift assets that do not produce income but are expected to appreciate — growth stocks or real estate — because capital gains are not subject to the same attribution. Any gifting strategy should also leave the donor with enough assets for their own financial security, and should be documented clearly to prevent later disputes.
Watch the pitfalls
Assets that bypass the will are powerful, but they are not risk-free. The unintentional disinheriting of certain beneficiaries, disputes among heirs, and unforeseen tax liabilities can all arise from assets that pass outside the will — and the risk is sharpest in blended families, where a simple will leaving everything to a surviving spouse can inadvertently route an estate to the spouse's children rather than the deceased's. A consistent, regularly updated estate plan that accounts for both the probated and the non-probated assets is essential to keep the whole plan aligned with the testator's intentions. Shareholders' agreements add a further layer of control for owners of private companies, governing how shares move on death and reducing the value that passes through the estate.
How the work is done
A probate-planning engagement starts by cataloguing every asset and classifying it by whether it passes through the will or outside it, then designing the combination of primary and secondary wills, beneficiary designations, joint ownership, trusts, and lifetime gifts that moves the most value outside the probate calculation without creating new problems. Because the avenues interact — and because a misaligned beneficiary designation or an unintended joint account can undo years of planning — the work is best done with the family's full asset picture in view and reviewed whenever circumstances change.
This guide draws on Dale Barrett's book Holistic Tax & Estate Planning.