When someone dies, not every asset they own will pass through their estate. Some assets transfer directly to a surviving owner or designated beneficiary, while others become part of the estate and are administered by the executor.
Understanding the difference is important because it can affect whether probate is required, who receives an asset, and how the estate is administered.
In British Columbia, there are generally three ways assets pass upon death. Knowing which category an asset falls into can help executors understand what must be included in a probate application and what may pass outside of the estate.
The Three Ways Assets Pass on Death
Generally speaking, assets pass upon death in one of three ways:
- Through a beneficiary designation.
- By right of survivorship through joint tenancy.
- Through the deceased’s estate.
With some exceptions, only assets passing through the estate generally need to be declared in a probate application, provided probate is required.
The way an asset is owned is often more important than the type of asset itself. For example, a bank account owned jointly with another person may pass differently than a bank account owned solely by the deceased.
Assets That Pass by Beneficiary Designation
Certain assets allow the owner to name a beneficiary who will receive the asset directly upon their death.
Common examples include life insurance policies, Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and Tax-Free Savings Accounts (TFSAs).
Where there is a valid beneficiary designation, these assets generally pass directly to the named beneficiary instead of forming part of the deceased’s estate. As a result, they typically do not need to be included in the probate application.
Although these assets often avoid probate, they may still have tax consequences depending on the circumstances. Executors should ensure all tax obligations have been addressed before making final distributions from the estate.
Assets Held in Joint Tenancy
Assets held in joint tenancy often pass directly to the surviving joint owner through the right of survivorship. This commonly applies to spouses who own their home together as joint tenants.
In many situations, these assets do not form part of the deceased’s estate and are not included in the probate application.
However, this is not always the case.
When Can Jointly Owned Assets Still Form Part of an Estate?
One of the most common misconceptions is that simply adding another person’s name to an asset guarantees it will avoid probate. In reality, that is not always true.
Where someone gratuitously adds another person as a joint owner of land or a financial account, the law may presume that the surviving joint owner is holding the asset in trust for the deceased’s estate rather than inheriting it personally. This legal principle is known as a resulting trust, and often occurs when a parent adds one of their children to a bank account or a home.
A resulting trust is only a presumption and can often be rebutted. If there is evidence that the deceased intended for the surviving joint owner to inherit the asset, the court may determine that the asset passes directly to the survivor instead of through the estate.
For this reason, documenting your intentions when adding someone as a joint owner is extremely important. Clear written evidence of your intentions at the time ownership is changed can help avoid disputes after death.
It is also important to note that the presumption of resulting trust generally does not apply to transfers between spouses.
Assets That Form Part of an Estate
Assets that do not pass by beneficiary designation or through joint tenancy will generally form part of the deceased’s estate.
These commonly include a home owned solely by the deceased, bank accounts held only in their name, vehicles, personal belongings, non-registered investment accounts without a designated beneficiary, and business interests owned personally by the deceased.
These assets are administered by the executor according to the terms of the Will and the requirements of the Wills, Estates and Succession Act (WESA). Where probate is required, these assets will generally need to be included in the probate application before they can be transferred or distributed.
Why It Is Important to Understand the Difference
Whether an asset forms part of an estate is not always as straightforward as many people believe.
The legal ownership of an asset, the existence of a beneficiary designation, and the circumstances surrounding joint ownership can all affect how property passes after death. Assuming that an asset automatically avoids probate because another person’s name appears on it can lead to unintended consequences and disputes among family members.
Proper estate planning can help ensure your wishes are carried out while reducing uncertainty for your executor and beneficiaries.
Speak With a Probate Lawyer in British Columbia
At Westcoast Wills & Estates, our team assists executors across North Vancouver, Vancouver, Burnaby, Surrey, Richmond and surrounding communities with probate applications and estate administration. If you have questions about how assets will pass upon death or whether probate is required, our experienced probate lawyers would be pleased to provide guidance tailored to your circumstances.
To get started or to learn more, contact our office to book a consultation today.
