When someone passes, most of their assets will be immediately frozen. Their executor or his/her lawyer must apply for Court approval to get the assets unfrozen and passed down to the beneficiaries. This necessary process is called probate.
We often get calls from clients who want to do probate years after the deceased has passed. This is not good at all. Starting probate late will likely result in a lot more expenses and sometimes even the complete loss of claim to your inheritance.
On the flip side, contacting an experienced lawyer immediately after a person dies can help to solidify your claim to the estate and will almost always significantly reduce the amount of time and money required for the probate process.
In this 2-Part Series on Probate, we will discuss 10 major risks of delaying the probate process. This article will cover the first 5 risks, with the remaining 5 risks to be discussed in Part 2.
Below is a list of the fist 5 important reasons why probate should NOT be delayed:
- Delaying Creditors – if the deceased owes any debts during their lifetime (e.g. mortgage, line of credit), those will need to be immediately paid out after his/her death; otherwise, any secured debts (e.g. mortgage) may result in the creditors (e.g. banks) selling the asset (e.g. estate property)
- Avoid Bond Insurance – delaying probate makes the Court think that the executor is not trustworthy, which will increase the likelihood they require a bond insurance from the executor (when the Court requires bond, then the insurance must be purchased, which usually costs 5% of the entire estate value)
- Protect Entitlement to Estate Trustee Compensation – Estate trustees are entitled to be compensated for their services as estate trustees. However, this entitlement can be lost if the estate trustee doesn’t apply for probate quickly
- Be authorized to make immediate decisions – without being appointed as the estate trustee, you have no authority to speak for the estate. If the estate is a party to any major agreements, like to purchase or sell a property, an estate trustee must be appointed immediately
- Be authorized to repair or maintain the estate – without proper management of estate assets by the executor, the assets will likely lose value with time, decreasing the total amount of inheritance (e.g. a house not managed will deteriorate and reduce in value)
These first 4 benefits of applying for probate quickly are explored one-by-one below.
-
Delaying Creditors
When someone dies with debts, like a mortgage or a credit card, the estate must payoff the full outstanding balance immediately. Under the Mortgages Act, the bank is entitled to do power of sale after a mere 15 days of non-payment. This means the bank can sell the property themselves and charge the estate for all costs related to the sale, which can be tens of thousands of dollars. Unfortunately, as soon as the bank starts power of sale, the estate must pay for the bank’s realtor and legal fees.
Additionally, the price for which the estate property will be sold is a big problem. If the estate trustee sells the property, they will seek the highest sale price. A bank’s goal, on the other hand, is simply to sell for a reasonable price so they can payout the mortgage. To ensure a quick sale, banks will often sell the estate property below market price.
However, this power of sale by the bank can often be delayed if your estate lawyer informs the bank that a probate application has been submitted. For this reason, it is essential that the estate trustee applies for probate right away and that the bank is made aware of this.
-
Proving the Estate Trustee can be Trusted to Avoid Bond Insurance
If the court doesn’t think the estate trustee will follow the rules, they could be forced into buying an expensive insurance policy that could cost up to 5% of the value of the estate. So, if the estate is worth a million dollars, the estate trustee could be forced to pay up to $50,000 for an insurance policy in some situations.
Now, one of the biggest responsibilities of an estate trustee is to payout debts and give the inheritance to the beneficiaries. If an estate trustee delays probate, they are failing to do their job, which will make them less trustworthy. If the Court believes that the estate trustee cannot be relied upon, they will scrutinize the case. When this happens, the judge may request additional information or documents from the estate, which will result in even more delays. Additionally, as mentioned above, if the estate trustee cannot be trusted, he will almost certainly need to purchase an expensive bond insurance policy. Even worse, while the estate can reimburse the estate trustee for this after probate is approved, the initial insurance purchase cannot be done using the deceased’s money.
-
Protect Entitlement to be Compensated
Since the job of an estate trustee can be very challenging, the law allows an estate trustee to be paid for their services under the Trustees Act. The standard amount is 5% of the value of the estate, which, for some estates, could be a massive amount of money. For example, if an estate is worth a million dollars, the estate trustee could be paid up to $50,000 for their services as estate trustee.
Unfortunately, any compensation an estate trustee may be entitled to receive will be lost or reduced if they cannot be trusted and cause delays. For this reason, it is essential that the estate trustee perform their duties efficiently as possible.
-
Get Authority to Speak for the Estate before it is Too Late
When someone dies, somebody needs the authority to make decisions for the estate. This authority is required to complete any purchase or sale of any properties or responding to creditors of the estate. Without probate, nobody has the authority to speak for the estate.
Sometimes, a deceased person signed an agreement to purchase a property, like a new condo, before they died. When this happens, an estate trustee must get appointed right away to ensure someone has the authority over the estate before the sale is supposed to complete. If nobody has been appointed, the estate will be in breach of the agreement and could lose all deposits, which are often over $100,000.00.
Also, in Ontario, a person has 2 years from the date of death to sue an estate. If the estate gets sued and you have applied for probate, the court may delay the lawsuit until you are approved as the estate trustee. However, if you have not applied, the court may proceed without you. Without being appointed as the estate trustee, the estate could lose the lawsuit simply because there is nobody to represent the estate.
-
Maintaining and Repairing Estate Assets
Additionally, many assets require regular care to maintain their value, especially real estate. When real estate is left unmaintained, there can be a substantial loss of value caused by damage to the property. Even worse, without being appointed as the estate trustee, you have no authority to hire anyone to make repairs to the property and you are not legally allowed to use the deceased’s money to make any repairs.
So, if you delay probate and discover the house needs a new roof, you cannot hire anyone and you will have to pay for any repairs you can do from your own money. If you had applied for probate right away, you could hire a qualified repair person and would have had access to the deceased’s assets to pay for the repairs. Unfortunately, while waiting to get approved, the roof leak will get worse, and a simple repair could end up causing tens of thousands of dollars in water damage.
Conclusion:
While the probate process can be difficult for many people, it is not something you should delay. Delays will lead to major consequences, including things like family disputes, property damage, expensive insurance policies, lost trustee compensation and even physical property damage. For these reasons, we always encourage our clients to submit their applications for probate as soon as possible.
Also, when you hire an experienced estate law firm, they can make the whole process easy and smooth.
We invite you to visit our website again next month when we will explore 4 additional reasons to avoid delays when applying for probate.
If you have any questions regarding your estate needs, please book a 1st free consultation with us: https://calendly.com/sabrina-668/1stfreeconsult
