Multiple Wills for Business Owners

The use of multiple wills by Ontario business owners can significantly reduce the amount of estate administration tax (commonly known as probate fees or probate tax) that may otherwise be payable by the business owner’s estate.

Probate is the legal process by which a court confirms the authority of an executor (estate trustee) to deal with the assets of a deceased person. While probate is generally not required as a matter of law, it is required as a practical matter by most financial institutions, land registry offices and other authorities whose cooperation is needed to transfer title to certain estate assets.

In Ontario, the estate administration tax is levied at a rate of $5 per $1,000 for the first $50,000 of estate value, and $15 for every $1,000 of estate value in excess of $50,000. The estate value generally includes the value of all property that belonged to the deceased person at the time or his or her death (less the value of any mortgages on real property, real property outside of Ontario, jointly owned property that passes by right of survivorship to another person, and life insurance, RRSPs and RRIFs payable to a named beneficiary).

The problem, however, is that if probate is required for any of the deceased’s assets, all of the estate assets governed by the will must be included in the total estate value for the purposes of calculating the tax payable (including those assets with respect to which it would not have otherwise been necessary to obtain probate).

A solution to this problem is to have two wills: (i) a “public” will concerning those assets of the estate for which probate will likely be required; and (ii) a “private” will for those assets of the estate for which probate will most likely not be required, such as private company shares held by the deceased (since the transfer of title to such shares typically only requires the consent of the directors of the company, who are generally prepared to give their consent to such a transfer based on whatever evidence they deem sufficient in the circumstances). While this makes the drafting of wills a little more complicated, the potential tax savings for a reasonable-sized estate can be significant.

While the use of multiple wills as a legitimate estate planning strategy has generally been accepted by the Ontario courts, one cannot guarantee that probate will not be required for the so-called “private” will in all circumstances (e.g. where such will is contested by some of the estate beneficiaries or others, etc.).

The proper implementation of this strategy requires very careful drafting of the two separate wills (e.g. to ensure that the “private” will does not revoke or override the “public” will, or vice versa). It is also important that the assets dealt with under each will are carefully defined so that there is no overlap between the two wills, nor any assets that are not dealt with under either will (i.e. that fall between the cracks). As with any estate planning, the retention of a properly qualified legal professional is highly recommended.