Multiple Wills for Business Owners & Professionals

The use of multiple wills is one of the most effective estate planning strategies available to Ontario business owners and professionals (doctors, accountants and lawyers) to save and, sometimes, completely avoid estate administration tax on death.

In Ontario, there are three taxes applicable at death: (i) tax on income, (ii) tax on the sale/disposition of capital assets, and (ii) estate administration tax.  Estate administration tax is commonly referred to as the “probate fee” because it arises in the process of submitting a Will to probate.

What is Probate?

The probate process involves registering the deceased’s Will with the Ontario Superior Court of Justice, and applying for a Certificate of Appointment of the Estate Trustee (the “Executor”). It also requires payment of the estate administration tax (the probate fee) by the estate.

Probate fees vary from province to province. Ontario currently charges some of the highest probate fees in the country and for many middle and upper class Ontarians, this tax can easily run in the tens or hundreds of thousands of dollars. 

However, not all Wills however are subject to the probate process, and where no probate is required, no estate administration tax is paid. 

How do you know if your Will requires probate?

Whether a Will needs to be probated or not, depends on the assets governed by that particular Will. 

Land for example, is not in most cases, transferable after death of the owner without a probated Will. Investment accounts, bank accounts and other financial assets owned by the deceased person alone also usually require a probated Will in order to allow for the liquidation and transfer of those assets to the beneficiaries.  A probated Will offers institutions assurance that the person instructing them to transfer or liquidate assets has court-appointed authority to do so. 

Exceptions to probate typically arise where assets are owned jointly by the deceased and another person, or where an asset has a named beneficiary attached to it, such as, in many cases, life insurance or an RRSP.  Other exceptions to probate arise with shares of privately held corporations or interests in privately held partnerships.  In many cases, the transfer of private company shares on death of a shareholder is governed by the terms of a shareholders agreement and not by a shareholder’s Will.  Even where no shareholders agreement is in place, most business owners and professionals have lawyers and/or accountants who are intimately familiar with the deceased’s business and his or her family members, and know of the deceased’s intentions for the business upon death.  Unlike the financial institutions, your personal lawyer or accountant is unlikely to require formal proof or assurance of your death or to see that your executor has been formally court-appointed through a probated Will.  As a result, the multiple Wills strategy allows for the creation of a separate and distinct testamentary document (in other words a second Will), outlining your instructions with respect to your private company interests on death which would not be subject to the probate process, thereby saving the probate fees associated to your private company interests which would have been incurred had only a single Will been in place. 

This issue was specifically addressed in the 1998 case of Granovsky Estate v. Ontario. In this case, a wealthy businessman allocated his assets under two separate wills. He placed approximately $3 million of his assets under his primary will while his remaining assets, consisting of shares in a private company valued at over $25 million, were placed under his secondary will. His executor submitted only the primary will for probate which, based on the $3 million dollar valuation, resulted in an estate administration tax payable of $44,500, in contrast to the much higher amount of $419,500 that would have been payable on his aggregate estate value of $28 million.

The provincial government responded by suing Granovsky’s estate for failing to submit both the primary and secondary wills for probate.  In the ensuing legal battle, Justice Greer ruled in favour of the estate and endorsed the use of multiple wills as an acceptable estate planning strategy. As a result, Granvosky saved $375,000 on his death by having two Wills. Since Granvosky, the use of multiple wills has become a widely accepted estate planning strategy in Ontario. 

A Word of Caution 

While in most cases, secondary Wills circumvent the probate process and the estate administration tax, there are situations which may warrant probating the Secondary Will. This most commonly occurs where the validity of the Will is challenged or where a third-party purchaser of a business requests the formally certified Will and estate trustee before he or she will enter into the purchase transaction. 

In addition, careful drafting is required to ensure that a secondary will does not revoke the primary will or introduce additional legal issues after death.  As with any estate planning strategy, it is important to retain a qualified estates lawyer to assist you with your goals

If you have any questions with respect to the use of multiple wills or would like more information on the steps required in implementing this strategy, please contact  Jessica Elie or another member of Loopstra Nixon's Wealth Management & Estate Planning Group.