V. The Option of Administering Small Estates Without Probate

////V. The Option of Administering Small Estates Without Probate
V. The Option of Administering Small Estates Without Probate2017-03-03T18:35:36+00:00

In light of the unpopularity of the estate administration tax as well as the effort and expense involved in obtaining probate, there is a strong incentive for the estate representative of a small estate to avoid probate and distribute the assets informally. However, in addition to the loss of legal protection, there are also other challenges associated with avoiding probate. In this section, we explore the option to administer a small estate outside the probate system.

 

A.  How often Are Small Estates Administered without Probate?

As noted above, more than three quarters of Ontario estates are not probated. This is not a particularly helpful statistic since it also encompasses larger estates that have been carefully structured to avoid the need for probate. As one practitioner pointed out, the result is a curious and incongruous system in which mid-sized estates tend to be probated but the largest and smallest estates are not.[182]

People tend to avoid probate not only because they cannot afford it but also in order to circumvent the tax requirement, as well as the administrative process. More than one stakeholder attributed the problem with the probate system to the tripling of estate administration tax in the 1990s. Before this, there was apparently little fuss around probate. Nevertheless, the process itself can also be a deterrent. As discussed in the previous section, the process can be intimidating and confusing for laypersons.

Practitioners described clients going to great lengths to avoid probate even where the estate administration tax payable was relatively small. For example, one client was adamant about avoiding probate to save $6,000 in estate administration tax in spite of the fact that it would compromise the testamentary plan for a $400,000 estate.[183] Another practitioner referred to the “weird” compulsion that many people have to avoid probate and noted that they may end up spending more money on dispute resolution than they save in tax.

One individual stakeholder described administering an estate without probate even in the face of roadblocks put up by a financial institution:

The…bank forced me at the last moment when I didn’t go the Probate route to provide all sorts of personal financial asset information before they would release the Estate Funds to the heirs. They released Estate funds to pay Estate creditors but then change their regulations internally, I was told, and wanted personal declaration of my financial assets that were much greater than the value of the Estate in question.[184]

One consequence of this trend to avoid probate wherever possible is an increased risk of financial abuse. Many practitioners and other professionals were aware of financial abuse in the form of putting property into joint ownership in order to avoid probate. For example, one practitioner described an estate in which he acted as both executor and lawyer. Family members convinced the testator to put property in joint ownership shortly after the will was executed. When the testator passed away, this allowed the family members to avoid probate, ignore the provisions of the will and avoid dealing with the executor.  Unlike many stakeholders, this practitioner did not approve of probate waivers by banks. His view was that the practice of banks waiving probate was short circuiting the legal protection intended by the system:

My experience is that banks particularly disrespect the process by offering to let executors and administrators to have access to funds up to $100,000 by providing an indemnity so the bank is off the hook for liability. They don’t seem to care about beneficiaries, spousal claims, creditors etc. and individuals signing these things don’t know the legal implications. It is also my view that it isn’t just the monetary value of an estate which is important but also the legal issues surrounding an estate.[185]

Another practitioner took the view that banks should not release assets without probate since this sends the wrong message to estate representatives. This individual commented,

Too many estate representatives do not take their job seriously. They are okay at organizing information and some general administration tasks but they are lax in reporting to beneficiaries and filing tax returns or locating creditors. Sometimes this is a result of long-standing family feuds. Probate sends a message that someone who takes on the role of ET [estate trustee] needs to be very serious about doing a good job, acting reasonably, and prepared to accept personal liability.[186]

Anecdotal evidence suggests that there is an established practice of avoiding probate particularly for small estates, although there are no numbers to gauge it. Next we consider the effect of this practice on the financial and other institutions that hold estate assets.

 

B.              Duty of Financial and Other Institutions to Safeguard Assets

Institutions holding a deceased’s assets have a legal duty (statutory or common law or both) to safeguard those assets on behalf of the deceased. The assets may be transferred only to an estate representative who is legally authorized to receive them on behalf of the estate.[187] The scope of the institution’s duty to establish this legal authority is generally a matter of interpretation. As noted in section IV.B above, institutions tend to interpret these provisions strictly.

For example, the federal Bank Act allows banks to rely on provincial probate systems as evidence of authority to receive the deceased’s assets. Section 460 provides that the delivery to the bank of an affidavit explaining a request for payment, along with a grant of probate, grant of letters of administration or “other document of like import”, constitutes sufficient authority for the bank to make the payment. However, the section also reserves the bank’s right to refuse to make payment unless additional evidence is provided.[188]

The point of this provision is to protect banks from liability if they release assets on the basis of a Certificate of Appointment (COA) or other court-issued document but it later turns out that the recipient was not legally entitled to the assets after all. It allows banks to accept a COA as proof of authority but it does not require that banks accept a COA and, in fact, it reserves the right of banks to require other such proof as deemed necessary. That being said, in practice, banks rely on section 460 of the Bank Act in seeking proof of probate before releasing assets. The banks may exercise this right to require probate even for assets having designated beneficiaries.[189]

The analogous legislation applying to Ontario credit unions is more flexible than is the Bank Act provision. Section 42 of the Credit Unions and Caisses Populaires Act, 1994 exempts credit unions from liability where they release amounts less than $50,000 to estate representatives without probate so long as the credit union acts in good faith and seeks evidence of the person’s entitlement to receive the money.[190]

Nevertheless, the LCO heard in consultations that credit unions also tend to take the position that probate is required before releasing assets to an estate representative. Where they do agree to waive the probate requirement, credit unions impose a 30 day waiting period before releasing estate monies in order to give other family members the opportunity to assert a claim.[191]

Credit unions often have longstanding relationships with their members. The representative body for Ontario credit unions reported that the probate system can be “prohibitively expensive and complex” for their members and it supports the idea of a simplified procedure for small estates.[192]

Insurance companies also have the challenge of determining whether or not a particular beneficiary or estate representative is entitled to receive a payout when the insured dies. The legislative requirements for life insurance companies are particularly vague in this respect. Section 203 of the Insurance Act provides that an insurer has thirty days to pay out insurance money on receiving “sufficient evidence” of an event upon which the money becomes payable and the right of the claimant to receive the money.[193]

Although the provision does not specify what evidence will be sufficient to establish the claimant’s right to receive payment, the practice of life insurers has generally been to require the executor to probate the will.[194] However, this is not a mandatory requirement.[195]

Section 207 of the Insurance Act also gives life insurers statutory protection from liability where they have not received authoritative evidence of the right to receive insurance money and they have mistakenly paid insurance proceeds out to the wrong person (presumably in accordance with section 203). The provision does preserve the rights or interests of any person other than the insurer. Therefore, the proper recipient would still be able to make a claim for the proceeds directly against the person who mistakenly received them.[196]

In a written submission, the Canadian Life and Health Insurance Association Inc. supported the idea of a simplified process for small estates “since court supervision is not economically feasible for majority of the smaller estates”.[197]

There are similar legislative provisions applicable to other institutions and particular kinds of asset transfers, none of which is entirely clear about the scope of the institution’s duty to protect against the release of assets to an unauthorized person. As a result, from the perspective of these institutions, releasing assets without probate leaves them open to a significant risk of liability.

This risk was realized in the Court of Appeal decision in Monteiro v. Toronto Dominion Bank.[198] A Kuwaiti family was in litigation over the validity of the mother’s will which had left all her assets to her daughter. Before the will challenge had been settled, and contrary to its own internal procedures, Toronto Dominion Bank released the mother’s assets to her sons. Once the will was ultimately determined to be valid, TD was held to be liable to the daughter for the missing assets. As the Court reasoned,

…[T]he situation TD finds itself in is the product of it having ignored its own internal procedures and thereby having paid the wrong party. In that regard, TD was the author of its own misfortune. Its internal procedures were designed to prevent this exact situation from occurring, but having chosen to ignore these procedures, TD now finds itself liable to [Daughter] for the funds in the account. I see no injustice in this result.[199]

Even where there is little or no legislative guidance, institutions have developed policy to address the issue of what evidence of authority should be required before releasing assets. There are a myriad of these policies for different institutions and different types of assets. These policies generally vary depending on whether or not there is a will.

For example, transferring Canada Savings Bonds can be a problem since it is not possible to designate a beneficiary on these. Even in small estates, these may not be released without probate. However, a detailed policy has been created providing for their release depending on their monetary value and the identity of the estate beneficiaries.[200]

A deceased’s motor vehicle may generally be transferred to an executor on providing the Ministry of Transportation with a copy of the will. Where there is no will, it may be transferred in certain circumstances where the beneficiary obtains a lawyer’s letter stating his or her entitlement or, where there is more than one beneficiary, stating that the other beneficiaries have no claim on the vehicle. According to one practitioner, this can be a problem in some circumstances:

The Ministry will often transfer an ownership to a beneficiary based on a lawyer’s opinion letter that the beneficiary is entitled to the vehicle if there is a will, or if there is a surviving spouse who would inherit the entire estate as the preferential share, but if there is no will and no spouse, it is almost impossible to get the vehicle transferred. Since people with small estates and no will tend to have less valuable vehicles, the cost of obtaining probate just to deal with a vehicle can be ridiculously disproportionate.[201]

It is not only financial institutions who rely on probate. Apparently, it can also be a challenge to transfer utility accounts without a will.[202]

All these legislative provisions and policies provide guidance on the scope of the institution’s legal duty to safeguard the deceased’s assets after death. However, the legal duty remains unclear and here lies the reason for the caution exercised by institutions, as well as the frustration of estate representatives and practitioners.

Financial institution stakeholders emphasized that the decision to require probate in any particular case is not simply a matter of cost/benefit analysis. In some cases it will make more sense to release small value assets rather than undergo the hassle of holding the assets up until probate is granted. Nonetheless, the law is that the institution must protect the assets and the privacy of the owner.

The legal duty of financial and other institutions to safeguard their estate assets is often unappreciated by estate representatives. Practitioners generally felt that banks were uncooperative in cases of small estates, telling the LCO that banks may require probate in order to release assets as low as $10,000 and where the total value of the estate does not support the cost of a probate application.

In consultations, financial institutions complained about the intense pressure they are under from family members and their lawyers to waive probate. This is also a problem beyond the estates context in other situations where financial institutions are required to establish the authority of a client’s representative. Institutional stakeholders explained that they are presented with all sorts of documents, printed off the internet or prepared by a law student, but these are not reliable and banks are generally obliged to reject them.

Financial institutions are also pressured by creditors to release moneys owing to them. Typically, financial institutions will agree to pay funeral expenses or taxes pending probate, but will not pay other creditors because they do not want to risk preferring one creditor over another.

 

C.    Duty of Financial and Other Institutions to Keep Client Information Confidential

1.     Financial Institutions

Financial and other institutions have a duty not only to protect their clients’ assets but also their privacy. For example, the Bank Act requires banks to take reasonable precautions to ensure that unauthorized persons do not access or use information held by the bank.[203] The Act also charges bank directors with establishing procedures for protecting confidential information, as well as a committee for overseeing those procedures.[204]

The concern here is not only to protect the privacy of the client but also that of third parties. For example, when an estate representative gains access to the account of a deceased client, they also access any ancillary information contained in that account about joint account holders, beneficiaries under trusts and other instruments, persons interacted with in the course of financial dealings (information in passbooks or electronic records) and so forth.

Similar legislative duties are imposed on other financial institutions.[205] These are in addition to the traditional banker’s duty of confidentiality in common law.[206] More recently, the introduction of federal privacy legislation, the Personal Information Protection and Privacy Act (PIPEDA), has brought greater attention to the protection of confidential information.[207] PIPEDA reinforces the duty of financial institutions to keep the sensitive information of their clients secure.

These privacy laws have led financial institutions to adopt restrictive policies around releasing client information to third parties, including estate representatives. In consultations, several stakeholders noted that it can be a challenge to obtain information from banks. For example, one practitioner spent three months sending letters to a bank asking for a valuation and still received the wrong information. Another practitioner described a case where the probate application was not filed until eight months after death because of the delay in obtaining information from financial institutions about the deceased’s assets.

Court staff also reported banks and insurance companies refusing to release information about a deceased’s assets. This makes it impossible for the estate representative to provide an accurate valuation of the estate for the purpose of a probate application. Financial institutions are particularly strict about maintaining privacy where there is no will naming the estate representative as executor.

Other practitioners thought that there were adequate practices in place to deal with the difficulty valuing assets. Many file an affidavit of estimated value with the probate application. However, this requires filing an amended statement later to confirm the final value. In some cases, banks will agree to release financial information only to a lawyer and on an undertaking to use the information only for probate purposes.

Where a bank or other institution requires probate in order to release information about the assets of a small estate, the estate representative may be placed in an impossible position. First, he or she will probably incur the extra expense of filing an affidavit of estimated value and then going back and correcting the value later on. Second, without knowing the value of the assets, the estate representative may not have a good idea of whether or not the estate is worth probating at all.

Some jurisdictions have dealt with this problem as part of estate administration reform initiatives. For example, under the new B.C. Probate Rules, where applicants are unable to access financial information about the estate pending a probate application, the Court may issue an Authorization to Obtain Estate Information.[208] In contrast, the Alberta Law Reform Institute recommended against this measure in their report on estate administration, favouring educational initiatives instead.[209] 


2.     Canada Revenue Agency

Another privacy issue may arise when an estate representative attempts to file the deceased’s final tax return with Canada Revenue Agency (CRA). CRA is bound by section 241(1) of the Income Tax Act to require proper authorization before releasing taxpayer information.[210] Even if there are no assets in an estate, CRA must ensure they are dealing with a legal representative so that they can send the Notice of Assessment and other mail to the correct address.

Section 241 is a broad provision for protecting taxpayers against disclosure of their confidential information in unauthorized circumstances. It begins with a general prohibition against government officials disclosing taxpayer information without authorization. There follows a number of statutory exceptions that permit the disclosure of information in specific enumerated circumstances. For example, an official may disclose taxpayer information where necessary for administering or enforcing the Act. It may also disclose information with the consent of the taxpayer.

Section 241 does not address the specific circumstances in which information may be disclosed to a “legal representative” of a deceased taxpayer. [211] Therefore, in refusing to accept a deceased’s final return without probate, CRA relies on the general prohibition against disclosing information without authorization.

CRA’s 2012 Guide, Preparing Returns for Deceased Persons, defines “legal representative” as an executor, administrator or liquidator (in Quebec). Executor and administrator are each defined as requiring court approval or court appointment.[212] However, other material available on the CRA website indicates that an executor named in a will may also be a legal representative, suggesting that probate may not be necessary in all cases.[213]

In consultations, court staff reported regularly dealing with estate representatives of small estates who are forced to seek probate even where the estate has no assets because CRA tells them that it is required. On the other hand, practitioners were divided in their experience filing final tax returns with CRA. Some practitioners indicated that filing the return without probate has never been a problem. However, most acknowledged experiencing some difficulty dealing with CRA without probate. Several expressed the view that the emphasis on privacy in estates matters was excessive and operated as a barrier to justice. Again, the problem was seen to be particularly acute where there was no will. 

 

D.   Discretionary Waiver Policies

In spite of the legal duty of financial and other institutions to protect the deceased’s assets and information, the reality is that it is impractical to require probate in every case when dealing with an estate representative. Financial and other institutions have developed policies to address those circumstances where it is deemed to be an acceptable risk to waive the probate requirement.[214]

There are a number of variables taken into account by these institutions in considering requests to waive the probate requirement. There may even be competing interests within the institutions. For example, the trust branch of a bank may have a commercial interest in being cooperative with the estate representative’s lawyer, whereas the retail branch may have a relationship with the family and, therefore, different motives. Also, the retail bank will have a range of customers, both sophisticated and unsophisticated, and will have accounts with smaller balances than, say, the trust branch or the investment brokerage. Each of these factors may influence the risk assessment.

Therefore, as might be expected, there is a wide variation among waiver policies adopted by different institutions. There is also variation within a single institution as to the policies adopted by different branches and the interpretation of a policy by staff members within a single branch. Staff members have different levels of experience with legal documents and therefore scrutinize them differently.

That being said, waiver policies do tend to have some common attributes. First, they usually apply only where there is a will. Probate is necessary for intestacies with limited exceptions. It may be waived in intestacies involving very small amounts like $1,000, or with the consent of the beneficiaries.[215] In intestacy, financial institutions may accept a marriage certificate and indemnity in lieu of probate.[216] However, probate will usually be required where there is more than one beneficiary.

Second, waiver policies are usually directed at assets less than a certain value. It is the value of the asset held by a particular institution that is significant here rather than the value of the estate itself. The value limit varies among institutions as does how strictly it is followed. At one bank, the cut off is $25,000. At another bank it is $100,000.[217]

Some waiver policies are stratified. For example, at one financial institution, waiver requests under $25,000 are left to the discretion of the bank manager. Waiver requests between $25,000 and $100,000 must be approved by the legal department. Waiver requests above $100,000 are denied. Another financial institution has the same stratified policy except that the manager’s discretion applies up to $30,000. Some financial institutions have no set policy but rely on the discretion of individual managers.

Third, waiver policies are ultimately subject to what some financial institutions referred to as “KYC” or “know your client”. Managers will exercise discretion based on their own knowledge of the deceased, the estate and any apparent risk factors. Some of the factors noted in consultations include the following:

  • size of the estate
  • existence of a will
  • age of the will
  • simplicity/complexity of the will
  • conflicting instructions from family members
  • number of beneficiaries
  • whether there are ex-spouses
  • extent of knowledge of the deceased
  • identity of the executor (whether spouse of the deceased, existing bank customer, Canadian resident with assets in Canada, approved by the beneficiaries, whether named in the will)
  • type of assets (registered or non-registered, banking or brokerage), and
  • jurisdictional issues, such as where executor is not resident in Ontario

Typically, financial institutions are more likely to waive probate for a small estate. However, the opposite may also be the case. Financial institutions are sometimes motivated to waive probate for a larger estate in order to ensure that either the assets remain with the institution or a debt owed to the institution by the deceased is recovered.

Conversely, financial institutions may refuse to waive probate even for very small estates if there are “red flags” increasing the risk of a problem, such as the following:

  • holograph or $99 will
  • will changed shortly before death
  • capacity  issues
  • evidence of family dispute
  • someone other than spouse named designated beneficiary
  • joint accounts with anyone other than spouse
  • out of province executor
  • out of province beneficiary
  • pressure to act quickly
  • executors who don’t get along
  • nieces and nephews (no emotional attachment to deceased)

Banks even have discretion to require probate in respect of an asset payable to a designated beneficiary (which usually transfers outside the estate). If the beneficiary is someone other than the spouse and the amount is above $100,000, banks are likely to require probate.

Financial and other institutions have developed their own techniques for reducing the risk of liability for probate waivers. In this way, these institutions essentially mimic the probate process. For example, applicants are often required to fill out a form providing details about the estate so that the institution can conduct a meaningful risk assessment. Also, value limits are adopted in order to cap potential liability and the executor or beneficiaries or both may be required to provide an indemnity.[218] Another technique used by some financial institutions is to impose a waiting period after death before estate assets may be released.[219] This provides an opportunity for beneficiaries or others to come forward who wish to challenge the estate representative’s right to receive the assets.

The CRA has a Taxpayer Representative Information Section that reviews unique scenarios involving estate representatives. There are internal policies that are applied on a case by case basis. The agent will review a number of factors in addition to the size of the estate, including strife in the family and previous tax history. For some small estates, the agent, in his or her discretion, may settle for a letter signed by all the siblings designating the representative.

In applying waiver policies, financial institutions have the same challenges gathering sound evidence to establish legal authority as is inherent in the probate system. One example commonly mentioned is the difficulty proving a common law partnership where there are no mutual children. Even waiver policies limited to estates where the only beneficiaries are the spouse or children or both are not ironclad. There remains a risk that these are not the real family members. A spouse might provide a marriage certificate as proof but there is no way to know whether there was a subsequent divorce.

Therefore, it is important to note that the decision to administer an estate without probate does not eliminate the problems associated with establishing authority to represent the estate. Rather, it simply shifts the responsibility for determining legal authority from the courts to the institutions holding the deceased’s assets.

There are a number of potential concerns with this practice. First, from a societal perspective, one might argue that it is inappropriate for private institutions to be driving these determinations of legal authority either by making these determinations themselves or, alternatively, by effectively forcing estates into the probate system. Second, from an accessibility perspective, one might question why some estate representatives choose to access the legal protection afforded by probate while other representatives of estates of the same value and attributes make do with an informal risk assessment carried out by individual institutions. A third, more practical concern is the lack of consistency in waiver policies. It is very difficult for estate representatives and their counsel to predict in what circumstances particular financial institutions are likely to waive probate. This unpredictability undermines the commercial advantages of a probate system. It is also inefficient. Estate representatives can spend as much time and money obtaining a bond and completing paperwork in order to avoid probate as they would in obtaining probate.[220]

One practitioner told the LCO,

I have seen banks release over $100,000 without probate, and refuse to release $12,000 where there was a will and the surviving spouse was the named executor and beneficiary.[221]

A few examples illustrate the lack of consistency among waiver decisions.

One practitioner described a recent file involving an estate worth approximately $20,000. The will named the deceased’s adult daughter as sole beneficiary and executor. A bank holding $10,000 in the deceased’s bank account refused to release this amount to the executor without probate. This was in spite of the fact that the daughter had operated the bank account as her father’s power of attorney for several years before his death. A complaint to the bank’s estate department was unsuccessful since the department refused to interfere with the discretion of local bank managers.

In another case, a bank refused to release a $6,000 guaranteed investment certificate (GIC) without probate because the staff was not familiar with the deceased or the estate representative. It was easier for the practitioner to file for probate (reducing his own fee) than to argue about it.

The LCO heard that the transfer of shares without probate can be particularly time consuming and complex. In one case, an elderly woman was left five shares in a particular company’s stock by her deceased husband. These were worth very little. Since this was the only asset in the estate, she decided that it was not worth going through the effort and expense of administering the estate. However, she felt the personal loss of giving up something left to her by her husband.

Waiver policies are also unpredictable for larger estates. The LCO heard about a bank helping to restructure an estate so that its value would fall below the $100,000 value limit for waiving probate, thereby circumventing its own policy.

There is cause to believe that the informal waiver practices of financial and other institutions will become more problematic in the future. Financial institutions do not know their clients as they once did. The trend to online banking is making it increasingly difficult to rely on local knowledge in determining whether it is safe to waive probate. Some stakeholders predicted that the trend will be for waiver practices to be centralized. One bank is already in the process of creating a centralized computer system for managing waiver requests in order to improve consistency within the bank. However, a side effect will be to reduce discretion and, quite possibly, reduce the number of waiver requests approved.

At an industry-wide level, financial institution stakeholders felt that there was a limit to what they could do to develop consistent policies around releasing assets after death. In fact, several financial institutions indicated that the industry would welcome rules designed to standardize these practices. 

 

E.     Consequences of Avoiding Probate

Although the decision of a financial institution to waive probate in respect of a particular estate asset may be a welcome relief to the estate representative or beneficiary, it brings with it its own concerns. First, there are a number of implications for how the estate will be administered going forward. Second, without court sanction, the estate remains vulnerable to fraud. These consequences are discussed in turn.


1.     Complications Administering the Estate

Where a financial institution agrees to waive probate, there may be a practical problem determining where to deposit the assets. A financial institution may be willing to waive probate for the release of a particular asset but may refuse to waive probate for the purpose of opening an estate account.[222] The institution incurs an increased risk in the latter situation because an estate account remains open indefinitely and the risk extends to all assets passing both in and out of the account. This is a particular problem where there is no will. According to one practitioner,

…[I]t is not up to the banks to figure out who they should be taking instructions from in the absence of an appointment either by Will or by [COA]. The banks are not in the biz of that sort of due diligence.[223]

There are a few ways to get around this. Some law firms will deposit the funds into their own trust account and issue a cheque to the estate representative (acting like a financial institution). In other cases, the financial institution will release assets not to the estate but directly to the beneficial owner. The problem is that, without probate, the assets may essentially bypass the estate and there is no structure to ensure that they are administered according to the will or succession law. As a result, it may be difficult for creditors or others interested in the estate to make their claim.

Without probate, there is no public record showing who has applied to administer the estate, the approximate value of the estate and the beneficiaries of the estate. The notice provisions are important to allow beneficiaries to follow up on the administration of the estate. A public record also allows other non-beneficiaries to access information about the estate.

This is a particular concern in the case of minors or incapable beneficiaries.  Without probate, there is less chance of a minor dependent recovering support from the estate under the Succession Law Reform Act (SLRA).[224] For example, the girlfriend of a deceased, who is estate trustee pursuant to the deceased’s will, may be able to convince the bank to release the amount she is entitled to under the will. If there are no other significant assets in the estate, chances are that there will be no probate application and, therefore, no public notice of the estate. The parent of a minor child of the deceased, a dependent of the deceased’s estate, may never become aware that a claim on behalf of the child is available under the SLRA.[225]

Another problem where there is no probate is the general uncertainty regarding the validity of the will and the authority of the person purporting to represent the estate. Without probate, there is no person legally responsible to collect the assets, pay debts including taxes, and protect the interests of beneficiaries. Many estate representatives will administer an unprobated estate out of a sense of loyalty to the deceased or moral obligation even where they have no beneficial entitlement. However, these estates are not settled for legal purposes and, absent a loyal estate representative, these estates may not be administered at all.

 

2.     Whether Lack of Probate Leads to an Increased Risk of Fraud

Without probate, there is little to prevent an imposter from taking control of the estate. There is no assurance that the will provided to a financial institution is the true and final will, that beneficiaries will become aware of their entitlement or that the estate representative will not abscond with the money.

Fraud as a result of probate waiver was a key concern for many stakeholders during consultations. One practitioner felt that the risk of improper administration was doubled or tripled where the estate was administered without probate. That being said, there was very little actual evidence of fraud occurring as a result of waiving probate. Several practitioners noted that fraud was infrequent and was just as likely to be perpetrated by a properly authorized estate trustee as it was by a “pretender” who did not have authority to deal with the estate. Institutional stakeholders also denied that fraud was a practical concern in deciding to waive probate, particularly where there is a will.

Our members have found that fraud is not a significant issue in small estates with current controls and would not expect a simplified procedure to materially impact this.[226]

Estates fraud is exceptional. A small estates procedure, while it may in theory increase the likelihood of fraud, would also impose a limit on the amount that is susceptible to fraud. In addition, small estates procedures may facilitate and accelerate estate settlement.[227]

One practitioner suggested that increased fraud would not be a problem with a small estate process only because “that door is already wide open”.[228]

That is not to say that there is no fraud associated with administering estates without probate. It is simply that, in many cases, these problems occur independently of the probate system. For example, family members may continue to use the deceased’s bank cards before reporting the death. This is improper but it is not something that the probate system can control.

The most likely scenario for fraud absent probate is an adult child convincing a parent to put property in joint ownership ostensibly to avoid probate but really so that the child gains control of the assets. Many stakeholders indicated that this is a common practice which causes havoc with estate administration. However, again, it is not something that the probate system can control directly.

There is clearly a need for a legal solution to the abuse of joint ownership but it is a problem that lies beyond the scope of this project. However, reform of the probate system for small estates may have an indirect benefit. Joint ownership is popular particularly as a way of avoiding probate. The creation of a small estates process that reduces the cost of probate may remove the incentive to avoid the probate system, thereby bringing more estates within the protection of the probate system.

 

Previous Next
First Page Last Page
Table of Contents