Use Multiple Wills to Lower Probate Taxes

By Tina Tehranchian

Having a will is a prudent measure for anyone, but for Ontario business owners, having more than one will can be even more prudent and beneficial in reducing probate fees, now called “estate administration taxes” (EAT) in Ontario. Probate fees in Ontario are among the highest in the nation. The first $50,000 of estate assets is taxed at 0.5% and anything above this threshold will be subject to a 1.5% probate fee.

The use of dual wills gained popularity after an Ontario judge found their use to be acceptable to lower probate fees in 1998. Since then, the courts in Manitoba and Nova Scotia have banned the use of dual wills. Therefore, now Ontario is the only province that allows the use of dual wills.

When using the dual will strategy, the “primary will” contains the assets that must go through the court system and be probated. These assets would require a Certificate of Appointment of Estate Trustee, and would include assets such as a house that is not jointly owned, shares in a public company or a bank account.

The “secondary will” pertains to assets that do not have to go through the courts and therefore are not subject to EAT. This includes an art collection, shares in a private corporation or jewellery.

If a person holds property outside of Canada, a third will is suggested. In this situation taxes would depend on the location of the property.

For owners of shares of private companies the savings from having dual wills can be substantial. For example if the value of the private company shares are $1,000,000, the EAT is $14,500. By excluding those shares from the primary will and including them in the secondary will, the estate will not have to pay EAT on those shares.
Many business owners own holding companies that hold significant real estate, cash and other assets. By having a secondary will that deals with the shares of the holding company, they can ensure that these assets will not be subject to EAT.

Different executors can be appointed for each of the wills. Also, both wills should mention that there is another will looking after different assets. It is important to keep both wills in one place and to make sure that ideally both or at the minimum, one of the executors knows about the location of both wills.

If you use dual wills, you should ensure that your assets are completely and clearly differentiated in each will. If the two wills overlap or contradict each other, you will run the risk that they will be invalidated, which would mean that your estate is treated as if there was no will at all and straightening the situation would require an often lengthy and costly court process.

Obviously the cost of having dual wills needs to be considered and assessed against the resulting tax savings.

Other strategies that can be used to lower estate administration taxes include, designating a beneficiary on an insurance policy, RRSP, or pension plan contract, joint ownership of assets and making a gift prior to death. Each of these strategies has drawbacks that need to be considered and fully discussed with your financial planner and tax and legal advisors.

While using dual wills is a common strategy used by many wealthy families in Ontario, you should discuss the ramifications and the appropriateness of this strategy for your circumstances with your estate planning lawyer.

Tina Tehranchian, MA, CFP, CLU, CHFC, is a Senior Financial Planner and Branch Manager at Assante Capital Management Ltd. in Richmond Hill, ON, and can be reached at (905) 707-5220 or at Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada.