The Benefits of Multiple Wills
Estate administration tax, formerly known as probate fees, is a tax charged on the total value of the estate of a deceased person. The total value of the estate is the value of all assets owned by the deceased at the time of death; this includes, among other things, real estate in Ontario, bank accounts, personal property, business interests, and vehicles.Contact us as a Persian lawyer in Toronto
In order to obtain an initial certificate of appointment of estate trustee, the Will must be probated and the estate trustee must pay an estate administration tax at the rate of $5 per $1,000 (or part thereof) for the first $50,000 of estate value and $15 per $1,000 (or part thereof) for the estate value in excess of $50,000. An estate with a value of one million dollars would therefore have to pay $14,500.00 in estate administration taxes.
Minimizing the amount of estate administration tax payable is integral to estate planning. Some of the established ways to reduce probate fees include beneficiary designations under life insurance policies and joint ownership of assets with a right of survivorship. The use of multiple wills have also gained popularity as a method to reduce estate administration tax. This is particularly useful for small business owners whose shares in privately held corporations can comprise a large portion of their estate. The prudent small business owner would place his or her corporate shares in a secondary will (which is not subject to probate) thereby transferring the shares without having to pay probate fees on them.
The logic behind using multiple wills is as follows. When the Estate Trustee applies for the Certificate of Appointment of Estate Trustee, he or she is required to pay the estate administration tax based on the estimated value of the assets included in the will that is submitted with the application. Probate fee minimization is accomplished by preparing two wills; the first being referred to as the “Primary Will” or “Probatable Will” and the other as the “Secondary Will” or “Non-Probatable Will”. The Primary Will governs all assets not governed by the Secondary Will (e.g. bank accounts and real estate not held jointly). The Secondary Will generally governs shares of private corporations owned by the deceased. Since only the Primary Will is submitted to the court for the issuance of a Certificate of Appointment, probate fees are paid only on the value of the assets governed by the Primary Will. Probate fees are not paid on the value of the assets passing under the Secondary Will and are therefore shielded from the estate administration tax.
The tax planning advantages can therefore be substantial for owners of shares of private companies. For example, if the total value of a deceased’s estate is three million dollars, five hundred thousand of which is real estate, bank accounts, vehicles and so forth (under the Primary Will), and the value of his or her interest in a private corporation is two and a half million dollars (under the Secondary Will), then the total amount of probate payable on the estate would only be $7,000.00 instead of $44,500.00 if the deceased only had one will.
If you are contemplating drafting a will or making a change to your present will contact a lawyer(Wills and estates lawyer in Thornhill) to inquire about the risks and rewards of multiple wills, so that you can then make an informed decision on whether two wills are better than one.