A. The Role of Court-Supervised Probate in Modern Society
Probate is a legal process regulating the transmission of wealth after death. It establishes the validity of wills and authorizes the persons responsible for administering estates. Court-supervised probate systems have existed since before the Statute of Frauds was passed in 1677. The first Court of Probate was introduced in Ontario (Upper Canada) in 1793, only one year after the new province was established. Today, probate systems are the norm throughout the Commonwealth and the United States.
A court-supervised probate system has a number of functions. It assists in the orderly administration of assets on death and this preserves peace in the community and stability in the commercial world. It provides some protection to beneficiaries and creditors against poor administration or fraud and it provides the estate trustee with some education about his or her legal responsibilities. Another benefit is that it provides a public record of estate trustees administering Ontario estates.
Over the years, probate systems have come under fire, particularly in the United States, for causing unnecessary delay in estate settlement, being unduly expensive and lacking privacy. It has become the practice of estate planners to organize their clients’ assets in order to minimize or avoid probate.
U.S. commentators have also argued that probate systems are out of step with modern forms of wealth and ways of transferring wealth. Today, the key assets in an estate are more likely to be personal property rather than real property as was once the case. And it is more likely that personal property will be held by a third party financial institution. According to an oft-quoted statement by Roscoe Pound, “Wealth, in a commercial age, is made up largely of promises.” Life insurance policies, pensions and registered savings plans all may be directly transferred on death by naming a designated beneficiary. Property may also be jointly held so that, again, it is passed directly on death. These transfers bypass the probate system and legal representation is not usually necessary. For this reason, some forms of non-probate transfer have been referred to as “poor man’s wills”.
The prevalence of these non-probate assets and the ease with which they may be transferred is argued to detract from the need for and efficacy of a formal probate system. Although a significant amount of wealth is transferred by these devices, they are not subject to the formal protections of probate. And yet, these transfers are just as vulnerable to fraud or financial abuse as are estate transfers. Adult children are just as likely to exert undue influence convincing a parent to put property in joint tenancy, as they are convincing the parent to execute a will.
Commentators have also argued that another function of court-supervised probate systems, the protection of creditors, is out of step with modern commercial practices. Improved data processes for calculating and evidencing consumer debt as well as the development of secured lending practices mean that creditors are less reliant on probate to recover debts. Also, much of a deceased’s wealth that a creditor may look to for satisfying a debt is likely to be transferred outside the probate system anyway.
These concerns have led some to question the suitability of the court process for overseeing estate administration. According to John Langbein,
Because the Anglo-American procedural tradition is preoccupied with adversarial and litigational values, the decision to organize any function as a judicial proceeding is inconsistent with the interests that ordinary people regard as paramount when they think about the transmission of their property at death: dispatch, simplicity, inexpensiveness, privacy.
Similarly, John H. Martin argues that a court-supervised probate system is not merited absent some complaint from an interested party. He quotes from an earlier article by Robert Stein and Ian Fierstein:
It seems unwise to require tens of thousands of estates to incur the time and expense of a particular judicial review because one or two of the thousands of estates might have a particular problem.
Martin also makes the point that a mandatory court-based probate system may generate a false sense of security since it is practically limited in its ability to prevent financial abuse.
B. The Policy Rationale for Small Estate Procedures
The movement in the U.S. to simplify or even eliminate court-supervised probate focuses on the probate system as a whole rather than the particular problem of small estates. Small estate procedures are seen as partial measures for ameliorating the probate process, specifically for the benefit of small estates. Small estate procedures are beneficial in reducing delay and expense in the probate system. They might even be argued to preserve the legitimacy of probate by offering a middle ground between the requirements of the full probate system and the lack of supervision associated with non-probate transfers. There are associated risks, of course, since small estate procedures relax some of the protections designed to prevent fraud or financial abuse. However, these risks must be considered in context. The probate system does nothing to prevent fraud or financial abuse where assets are transferred outside of the estate. Moreover, it is possible that small estate procedures may actually reduce financial abuse by encouraging estate representatives to take advantage of the procedure in circumstances where they would not otherwise have filed for probate. One of the goals in this project is to consider the extent of the risks associated with introducing a small estate procedure into Ontario relative to the likely benefits.
Interestingly, a concern for fraud is not all that prevalent in the U.S. literature on small estate procedures. Rather, the emphasis seems to be on facilitating estate settlement. One of the early U.S. small estates law reform initiatives was in New York in 1961. The Bennett Commission was appointed to carry out comprehensive reform of estates law with a focus on simplified procedures for smaller estates. In the introduction of its report, the Commission stated:
…[T]he interest of property owners of consequence is greatly overshadowed by the interest of the majority of our people. Of far more importance to the latter is freedom from undue expense and delay… The Commission must weigh the desirability of a tight, logical rule to govern every possible case, as against a simple, reasonable rule for the convenience of the vast majority.
The Commission recommended the introduction of streamlined probate procedures, including a small estate procedure. The philosophy behind these recommendations was expressed as follows:
To create the most serviceable statutes meant, as visualized by the Bennett Commission, making recommendations for the 999 honest persons out of 1,000 and not recommendations that would penalize timewise and expensewise the vast majority of the citizens of the State of New York in order to stop the one dishonest person. The Commissioners felt that there are many other methods to detect and to punish the dishonest person.
More recently, the policy rationale behind California’s small estate provisions was expressed by the Trusts & Estates Section of the California Bar (TEXCOM) as follows:
The statutory scheme concerning use of the small estate procedures balances the potential for fraud against the costs and delays of formally probating a small estate. In balancing those issues, a determination has already been made that for estates of a certain size, the benefits of allowing small estates to avoid the burden of formal probate administration outweighs the potential for fraud. Further, removing small estates from the already overburdened courts’ dockets would allow judges to focus more attention on estates where actual misfeasance has been alleged or indicated.
In recommending an increase of the maximum value for small estate procedures in California, TEXCOM stated that it was not aware of any published decisions “involving purported or actual fraudulent use of the Probate Code sections” and that none of the estate planning attorney members of TEXCOM was aware of even a single incidence of fraud associated with these provisions. TEXCOM suggested that the opposition to small estate procedures originated mostly from companies that commercially benefited from complex probate procedures, such as heir-finding services.
TEXCOM also assured the legislature that any concern for abuse would be addressed by provisions in the Probate Code subjecting anyone using fraudulent means to obtain estate assets to triple damages. This, however, raises an important distinction between the California and Ontario probate models. Ontario law does not provide for such high damage awards for fraud and would not have this legal tool at its disposal for discouraging the abuse of small estate procedures.
Some U.S. authors do express caution that removing estate administration from the supervision of the courts brings with it inherent risks. According to one commentator,
Passive probate works well for sophisticated consumers of probate services. But it is not without costs for the unsophisticated consumer who lacks the resources to access information and monitor the players in the probate process. Considering the tendency of human beings to be tempted by large amounts of money, less savvy participants in the American probate system often suffer.
Steven Seidenberg echoed this concern in a 2008 article for the American Bar Association Journal:
…[A]voiding probate means there is less outside supervision of asset transfers, making it easier for fraudulent schemes or family disputes to keeps assets away from beneficiaries and creditors who are entitled to them.
There is little literature on small estate procedures in Canada. However, the British Columbia Law Institute (BCLI) discussed the rationale underlying small estate procedures in its Interim Report on the Summary Administration of Small Estates. It described the social and economic purposes of probate as ensuring orderly disposition of property in order to preserve peace in the community, ensuring that debts are paid, discouraging misappropriation and ensuring that dependents are provided for so that they do not become public charges. BCLI stated that these purposes apply regardless of the size of the estate and concluded:
If there is no simple and inexpensive means by which those entitled to inherit a modest estate can recover and divide its assets, they could be excused for considering the legal system to be deficient.
BCLI discussed the impracticality of small estates going through the usual probate process, highlighting the expense and formality of the process and the need for legal assistance. It cited two statistics supporting its recommendation for a small estate process in B.C.:
In 2004/05 approximately 44% of all applications for grants of probate and administration in British Columbia related to estates under $100,000 in value. Processing these applications takes up one-third of probate registry staff time.
BCLI’s discussion touches on a couple of different rationales for adopting a simplified procedure for small estates. A primary reason is to make it easier for beneficiaries to access the assets that the deceased intended for them. Simplified procedures assist beneficiaries with limited financial means to probate small estates. Another reason is to assist estate representatives in administering small estates in a cost-effective manner. The goal here is to promote access to this particular form of court process. There is also a concern for the efficient operation of the probate system itself as suggested by BCLI’s reference to the registry staff time devoted to small estates applications.