Wednesday, June 6, 2007

Dual Wills May Mean More Dollars in the Pocket

People may have dual or multiple Wills to cover assets in multiple jurisdictions. For example, someone could have assets in both Canada and Tahiti. Instead of one Will to deal with all the assets, there could be two Wills: one to deal with the Canadian assets and one to deal with the Tahitian assets. This facilitates the smooth and timely administration of an individual’s overall estate.

Probate fee reduction is another reason to have dual Wills. A grant of probate essentially provides legal authority to the executor of a Will to deal with the estate and distribute it to the beneficiaries. While it is not mandatory to obtain a grant of probate, some organizations will not recognize an executor’s authority under a Will unless the executor has a grant of probate to back it up.

The concern that organizations have is that the Will appointing the executor may not be the last Will and testament of the deceased. The deceased could have written a new Will that revoked the earlier Will, and the organization could be held liable to the new beneficiaries if the later Will surfaced. It is up to the organization whether it wants to take that risk. The Land Title Office will not transfer property to an executor unless the executor has a grant of probate for the Will. Banks often have a policy that a grant of probate is required for assets greater than a threshold level (say $25,000; it varies from bank to bank) but not for assets below that threshold. For assets below the threshold, banks will accept an indemnity from the executor and beneficiaries; this way the bank has protection in the event a later Will surfaces.

Because probate is not mandatory, the surviving directors of a private family corporation can choose to transfer shares owned by the deceased without requiring probate of the deceased’s will.

Not having to obtain a grant of probate results in saving probate fees of 1.4% of the gross value of the estate. However, the executor cannot pick and choose which assets to declare when making a probate application. If the estate included both a residence and shares in a private corporation, the Land Title Office would require a grant of probate. The executor would then have to apply for probate and include the value of both the residence and the shares. In order to avoid having to include the value of the shares in the probate application, the shares could be dealt with under a separate will with qualifying attributes.

To illustrate the situation with some numbers, assume that Jim-Bob died leaving a house worth $500,000 and shares in a private corporation worth $10,000,000. Assume that Jim-Bob had separate Wills dealing with each of these assets. A probate fee of 1.4% would be payable only on the value of the house (probate fee payable of $7,000) but not on the value of the shares (probate fee avoided of $140,000). This is a significant saving.

While the dual Wills technique has been successfully argued in Ontario courts, no court in British Columbia has ruled on whether this technique avoids probate fees. The British Columbia legislation uses different wording from the Ontario legislation, so the Ontario case might or might not apply in British Columbia. As always, professional advice should be sought before using the dual-will technique. For example, it is important to use appropriate wording so that one will does not revoke the other. As well, any consideration of the dual-will technique should take into account your overall estate and tax planning objectives.

-- Devinder Sidhu

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The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.