Although you may already have a will, drafting up a second will containing the shares of your private company is a method to convey those shares to beneficiaries without your estate having to pay Estate Administration Tax. Granovksy Estate v. Ontario, 1998 approved the usage of multiple wills in Ontario as a means of probate planning. Greer J held that there was no legislative prohibition against the court to issue a primary will nor any requirement which required an estate trustee to submit a secondary will and pay estate administration tax on the value of assets governed by it. The appeal by the Ontario government was never perfected, as a result, the judgment in Granovsky has become a common strategy in Ontario for clients who own significant assets and want to avoid probate taxes.
Estate administration tax (also known as “probate” or “probate fees”) is levied before a will is administered. Ontario law requires taxes to be paid on the total value of the estate. The tax must be paid by the estate when the Personal Representative files an application for a Certificate of Appointment of Estate Trustee with the Superior Court of Justice. If the shares of your company are removed from probate, substantial savings can be realized by having multiple wills. For example: if your company is valued at $500,000, the estate would realize savings of about $7,500 in taxes.
The following is a list of assets commonly dealt with in a secondary will which is not intended to be submitted for probate:
- Shares of private corporations
- Personal effects (such as valuable art, jewellery, etc.)
- Assets in a bare trust held for the benefit of the will-maker, including assets passing by right of survivorship
Having two wills is just one consideration when planning for your Estate. Whether or not multiple wills should be included in your Estate Plan is a discussion you should have with your lawyer.
Other Common Strategies to Minimize Estate Administration Tax:
- Hold property jointly with someone else which creates the right of survivorship. Assuming there are two joint owners, when one passes, the surviving owner will obtain full ownership of the asset. It must be noted that there are certain complications with this strategy. As a result, a lawyer should be consulted, especially if the joint owners are not married.
- Designate beneficiaries of your RRSP, RRSIF or life insurance. However, unintended tax consequences on the beneficiary may result. Once again, a lawyer should be consulted.
- Create inter-vivos trusts
- Make gifts during your lifetime.