Getting Your Affairs in Order - Wills or Multiple Wills
It has become the recognized practice in Ontario in recent years to use multiple wills for purposes of avoiding paying probate fees on certain assets upon death (refer to a legal advisor in your Province for advice). Having more than one will to deal with assets in the same jurisdiction is a departure from past practice and is likely a cause of some confusion and needs to bne done carefully.
The reasoning behind this is based upon the rules that govern the calculation of probate fees on death and the sanction that the courts have given to a particular method of minimizing the amount payable. The motivation for such planning is largely based on the tripling of the rates that occurred in 1995. There can be a significant amount of money at stake.
"Probate fees" is a phrase that is somewhat colloquial. It describes what used to be the court fee payable when one applied for what were called Letters Probate. The terminology in Ontario has changed. Letters Probate are now called a Certificate of Appointment of Estate Trustee With a Will (a "Certificate") and probate fees are called the estate administration tax. We will refer to them as probate fees below.
A third party who controls an asset, such as a bank or a transfer agent for a publicly traded stock is generally unwilling to release control of the asset to the estate trustee without first receiving an authenticated copy of the will of the deceased that has been subjected to the court approval process that results in the receipt of a Certificate.
That process is the forum for which anyone who might have reason to dispute the will has an opportunity to do so. The bank therefore knows that, once the Certificate is obtained, it is quite unlikely that there will be any risk that someone might later appear claiming that the will is invalid or that they have another will that is the one that should be responded to. With that comfort they then release the asset to the control of the estate trustee.
The process itself is fairly straight forward. Its great difficulty lies in the obligation to pay probate fees as the price of obtaining the Certificate. The fees are calculated, roughly, as 1.5% of the value of the estate with no deduction for any liability other than a mortgage on real property.
Probate fees are not calculated on real property outside of Ontario, on jointly owned assets that pass to the survivor by right of survivorship or on proceeds of a life insurance policy that are paid directly to the designated beneficiary.
Similarly, the proceeds of an RRSP on death, if paid to a designated beneficiary directly, are generally not included in the calculation although that is not free from controversy. The estate trustee who applies for the Certificate must swear an affidavit setting out, among other things, the value of the estate so that the fee can be calculated.
Shares of a private corporation are generally not under the control of a third party transfer agent. They are transferred under the authority of the directors of the corporation who delegate the preparation of the share transfer documentation generally to the corporation's secretary who often asks for assistance from the corporation's lawyer. In closely held private corporations, the shareholder, director and secretary may all be the same person or may be related to one another. Upon death, the transfer of the share can be authorized and implemented without the involvement of anyone who is likely to require that there be a Certificate. They are likely members of the family and recognize that insisting on a Certificate will only cost money and provide no particular benefit because they are familiar with the affairs of the deceased and have confidence that the will is valid.
For greater certainty, if two wills are prepared, one dealing only with the private corporation shares and the other with all other assets, then the will dealing with all other assets will be probated but that dealing with the corporate shares would not. Probate fees would therefore be calculated on the value of the assets being dealt with in the first will and the value of the corporate shares would, in effect, be removed from the probate fee calculation. The shares of a corporation that is a family business will likely also be the subject of special treatment. The provisions that would have appeared in one's will that deal with that business would be separated out into a separate will document.
Other assets that might also be dealt with in a similar way - that is, in a separate will, are personal articles, household goods and motor vehicles. Whether or not to go to the trouble of creating a separate will for these purposes depends a great deal on their value. Having a good estimate of their value is important because the assessment of whether to create a separate will cannot be done without it. The arithmetic is simple and one can estimate how much might be saved in probate fees if the assets are segregated in that way.
Each will generally have essentially the same disposition provisions. The beneficiaries of the estate are likely to be the same and each will therefore likely say the same thing about who is to inherit.
Care must be taken in drafting multiple wills to ensure that there are no gaps left in the description of assets being disposed of in each case and as well to ensure that the execution of one Will does not have the effect of revoking the other. The wills must state, on their face, that it is the intention that they will co-exist.
The use of multiple wills is one aspect of planning to minimize probate fees. Other Strategies for reducing probate fees that could be considered (depending on your age and the complexity of your portfolio of assets) include the following:
• gifting assets
• joint ownership of assets with right of survivorship
• conversion of personal debt into corporate debt
• transferring assets to a private holding company in a low probate province
• transfers to a trust
• investing in specific life company products.
• for those over age 65, the use of alter ego trusts
It should be noted that these strategies can be complex and that careful consideration should be given to the specific tax and legal consequences that may arise. Before taking any action regarding any of the strategies outlined above, professional tax and legal advice is recommended.
While you still "can't take it with you" - you can take measures to leave more to your rightful heirs.
For more information about Wills, contact Larry Enfield, a partner with Enfield Wood LLP, who has practised estate planning administration since 1977.
To learn more about Larry Enfield and Enfield Wood LLP, visit the website http://www.enfieldwood.com/