High-net-worth clients should draft dual wills

When a person dies leaving a will in Ontario, it isn’t uncommon for the executor of the estate to apply for a certificate of appointment of estate trustee with a will, a legal process where courts confirm the validity of the deceased’s will, and the executor’s authority to act on behalf of the estate.

An issuance of this certificate means financial institutions and third parties will deal with the executor in the transfer of title of the deceased’s assets to his or her beneficiaries.

All cases don’t warrant probate – certain assets such as personal property including jewelry, cars, paintings, furniture and privately held shares can be transferred to beneficiaries without the necessity of probate. Other types of property, such as real property including land and real estate, oftentimes do require probate for the title to be transferred to another person. Probate is also required in situations where the estate is engaged in litigation, or third parties such as banks or other financial institutions refuse to transfer the title of an asset to a beneficiary. In every situation, the prudent executor will determine whether probate is necessary and choose not to proceed with probate, if possible, to spare the estate the additional expense.

For obvious reasons, when engaging in estate planning activities, the goal is to employ strategies that will reduce the value of the deceased’s estate, which will in turn reduce the estate administration tax (EAT).

Some well-known strategies for minimizing probate fees include:

• joint ownership of assets with right of survivorship;
• naming beneficiaries for RRSPs and insurance policies; and
• transferring assets out of the estate.

Since the landmark case of Granovsky v. Ontario, [1998, O.J. No. 508] was decided by the Ontario court in 1998, another common estate planning tool used to reduce probate fees is that of dual wills.

Dual wills

Philip Granovsky died leaving both primary and secondary wills. The primary will, which was submitted for probate, dealt mainly with his real property assets valued at approximately $3.2 million. The secondary will, which was not submitted for probate, dealt with Granovsky’s transfer of privately held shares, worth approximately $25 million. The estate did not pay any probate fees on the property dealt with in the secondary will. The government of Ontario objected to the grant of limited probate, and insisted that both wills be probated and the corresponding fees be paid. The court rejected the government’s position and found that the use of dual wills to reduce probate fees was an acceptable practice. The government of Ontario initially appealed the decision, but later abandoned it.

The net result of the Granovsky Case is that the use of dual wills has become an effective estate-planning tool in Ontario, specifically in situations where a testator intends on transferring privately held shares of significant value. Had the court in Granovsky ruled in the government’s favour, the estate would have been obliged to pay $375,000 in probate fees. How then does this case apply to your high-net-worth clients? Let’s consider the following scenario:

Jack Smith, an Ontario resident, has an estate valued at $5.3 million. His assets include a home worth $800,000, investments worth $1.5 million, and shares in a privately held company worth $3 million. If Jack were to pass away today, the EAT on his estate would be approximately $79,000. Jack has a will that needs to be updated, and has come to you for advice on what strategies he might use to reduce the EAT.

Considering the above facts, Jack should be advised to have a primary and secondary will drafted and executed. If Jack intends to distribute all assets to his beneficiaries, he could identify the home and investments as part of his estate in the primary will, and his shares as part of his estate in the secondary will. In doing so, Jack would save his estate at least $44,500 in probate fees, payable on the shares alone.

It is, however, important to note that dual wills as an estate-planning tool are an accepted practice only in Ontario, as the courts have dealt with this issue. Other provinces have not approved this practice. In Alberta, the courts dealt with similar issues in Pollock v. Manitoba [2004] M.J. No. 304, [2006] M.J. No. 231 where an executor attempted to reduce an estate’s probate fees by $75,000 by requesting a limited grant of probate. Although the facts of the case are not identical to Granovsky (the testator had only one will), the court ruled that limited probate would not be granted solely on the basis of reduction of probate fees, and the appeals court upheld that decision.

In all likelihood, the issue of using dual wills to reduce probate fees will be dealt with by courts in other parts of the country. For now however, this practice has been approved only in Ontario where a testator desiring to transfer certain kinds of assets can employ dual wills to significantly reduce an estate’s probate fees.

Akua Carmichael is an estate law lawyer.

This article is not intended to serve as legal advice. It is for informational purposes only. If you feel you need legal advice, please obtain legal counsel concerning your individual situation.

Akua Carmichael

Tax & Estate

Akua Carmichael, LL.B, J.D., TEP, is director, tax and estate planning services, with Empire Life. Akua.Carmichael@empire.ca