Multiple Wills

Most people know why it is important to have a Will. However it is less known that using more than one Will can significantly reduce estate administration tax. Under Multiple Will strategy, a primary will is used to deal with  probatable assets. A secondary will is drawn up to deal with assets that do not require probate. This method requires you to draw up two wills limited to specific property, with a trustee(s) named in each. Upon your death, your trustee(s) would submit only the primary will for probate, and the estate administration tax calculation would be based on the assets governed by that specific will. This strategy makes sense for estates of significant value (say, $200,000 or more) where the savings in estate administration tax would justify the additional time and expense of dealing with more than one will.

If you are considering using the multiple wills strategy, make sure you get legal advice. As of late May 2000, using multiple wills to avoid probate tax has been validated only by the court in Ontario (in Granovsky), and was based on Ontario statutes. Each province has its own statutes that will affect the usefulness of multiple wills in your situation.

If you are using the multiple wills technique, it is important to include a clause in each will that specifically describes the nature and date of the will being replaced. It is also critical that your wills are kept up to date because a change in assets can significantly influence your estate plan. If you are not sure whether a specific asset is probatable, it is wise to include that asset in your primary will. If you include a probatable asset in your secondary will in error, that will would require probate. In that instance, it would defeat the objective of multiple wills, namely saving estate administration taxes.

EXAMPLE

Sam Jones owned his own private company, a house valued at $500,000 (no mortgage), a bank account with a balance of $3,200, an investment portfolio valued at $605,000 and a coin collection valued at $45,000. At the time of his death Sam’s private company shares were worth $490,000. Sam was a widower, with no dependents.

Using Ontario rates for estate administration tax calculations, EA taxes payable would be:

In this example, estate administration taxes are reduced by $8,025 when multiple wills are used.

When are Multiple Wills Appropriate?

Although the Granovsky decision settled the question of whether the use of multiple wills is a valid estate planning tool, it did not address the issue of when this tool should, and should not, be used.

When deciding if multiple wills are appropriate for estate planning, persons should first segregate their assets into two categories: those for which probate is required and those for which it is not required. While not an exhaustive list, assets that may be transferred or realized on death without a probated will include: life insurance, pension plans, RRSPs and RRIFs, for which a beneficiary is named or designated; assets held jointly that devolve by right of survivorship; real estate registered in the Registry System and real estate not situate in Ontario; personal effects and household contents; and shares or debt obligations of private corporations.

By contrast, assets that do require probate include: lands registered in the Land Titles system; shares or debt obligations of publicly traded corporations; and bank accounts, GICs, brokerage accounts and term deposits. It is not simply the nature of the assets that determine if probate will or will not be required, however. The Courts have identified three circumstances in which probate is required:

If, based on the foregoing, the testator owns significant assets for which probate is not required, it may be worth considering a separate will for those assets. Of course, if one of the circumstances outlined above applies, it will be necessary to probate the will, notwithstanding the nature of the assets. It should be noted that if just one estate asset may be transferred pursuant to a probated will, estate administration tax is assessed on the full value of all of the assets that devolved under the will.