Multiple wills can help lower probate

The main aim of this multiple-will strategy is to lower probate taxes, now called “estate administration taxes” (EAT) in Ontario. Ontario has some of the highest probate taxes in Canada, at 0.5% for the first $50,000 of estate assets and 1.5% for anything above that threshold.

Much debate on multiple wills

Dual wills gained prominence in 1998, when an Ontario judge found their use to be acceptable to lower probate fees. Since then, however, courts in Manitoba have disagreed with that reasoning and eliminated the use of dual wills in that province.

In addition, Nova Scotia has legislation banning dual wills, leaving Ontario as the only province in which dual wills are used, says Brian Sweigman, a lawyer with Goldstein Rosen & Rassos LLP in Toronto.

Although the use of dual wills might seem like a strategy best left to accountants and lawyers, financial advisors have a key role to play, Sweigman says.

“We work pretty closely with financial advisors because they’re doing a financial plan, and people are looking at their future and worried about their wealth and retirement and beyond with succession,” he says. “The financial advisor often quarterbacks the meetings with lawyers and accountants, and the three of us will work together to put together an estate plan.”

The so-called “primary will” contains the assets that require a Certificate of Appointment of Estate Trustee and must go through the court system, where EAT will be assessed.

This primary will can include shares in a public company, a house that is not jointly owned and, sometimes, a bank account, says Michael Gasch, a partner with the tax and estate planning group at Robins Appleby & Taub LLP law firm in Toronto. The purpose of this certificate is to assure the stockbroker, a prospective buyer for the house or a financial services institution that they are dealing with both the appropriately named executor and the true last will and testament of the deceased.

Personal items not included

The “secondary will” does not have to go through the courts and so is not subject to the EAT. This includes personal items such as jewelry, an art collection or shares in a private company. In these cases, says Gasch, the items usually are left to a family member or a friend who does not require a court-approved letter of proof that the jewelry, art and shares are coming from the deceased.

(A third will sometimes is suggested if the person holds property outside the country; in that case, the assessed taxes depend on where the property is located. The U.S. and Canada, for example, have a treaty in place so that estate taxes are paid only in the state or province in which the property is located.)

The use of dual wills has definite economic benefits. For example, if a person leaves an estate of $1 million in assets, the EAT is $14,500.

“If you have private-company shares in your estate and public-company shares in your estate, if you only have one will, all of it is subject to probate,” says Shalit. “If you didn’t put in place a secondary will, the full value of your will would be subject to the tax. But if you plan accordingly and cover off the private-company shares in a secondary will, then that portion of the estate is carved out of the estate tax.”

Your clients don’t have to have huge estates to take advantage of dual wills. In fact, it’s not unusual for people who have a small business or corporation to use this strategy as well, Sweigman says: “There are a lot of small-business owners out there, and I deal with many of them who have a numbered corporation. But as the corporation owns a lot of assets, they can put real estate assets into the secondary will and then only probate the primary will.”

This strategy is especially helpful for people with private holding companies, Gasch says: “If I happen to be an individual who holds a good part of my wealth through a holding company or an investment company, the use of dual or multiple wills becomes a very effective and easy way to minimize estate administration taxes.”

When using dual wills, there can be a separate executor for each. And, like any will, the more complicated it is, the more need there will be for a legal and/or accounting expert to help out.

Both wills should mention that there is another will looking after separate assets, so keeping the two wills together and in a place in which at least one of the executors knows where to find them is a must.

“You should also make sure your assets are clearly indicated as to which will they are in and differentiated,” says Sweigman. “If they overlap, or if the two wills contradict each other, then there’s the risk that they will be invalidated.”

If that were to happen, the person’s estate is treated as if there was no will at all and will require an often lengthy and costly court process.

Expert advice is much needed

There also are costs to having two wills drawn up, and legal experts advise those contemplating dual wills do a little legwork to get some preliminary costs for legal and other fees vis-à-vis the EAT.

There are other ways to reduce probate on death. For example, says Gasch, designating a beneficiary in an insurance policy, RRSP or pension plan contract, joint ownership of assets and making a gift prior to death, are all excluded from probate fees.

Although some clients might think using two wills will make the estate more difficult to administer, Shalit says, it’s a common practice in Ontario.

“It’s frequently used in Ontario,” he says, “especially for wealthy individuals, because they know they are going to suffer this probate tax if they don’t take on any type of planning. It’s a very simple solution to a very prevalent problem.”

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