Shield your clients’ estates

This is part 3 in a 3 part series, read part 1 Anonymous donor and part 2 Anonymous trader.

If a client asks you to ensure his laundry, dirty or clean, isn’t aired after he dies, follow this simple rule: keep the will out of probate.

While most estate planners counsel clients to avoid probate, the advice is usually attached to the costs that will be incurred. Few bring up the privacy angle.

Once a will enters probate, its contents become a matter of public record. Not the path some of your clients may want to take. There could be a simmering family dispute over the whereabouts of a child, or one of the beneficiaries may have a stalker in her life.

In provinces where probate fees are low, few people bother to avoid the process. But what if there are secrets to keep?

Clients can apply to have the court seal records, but the province sets a high bar, says Yolanda van Wachem, associate with McLennan Ross LLP in Edmonton. “You have to prove irreparable harm to not exhibit what the assets are on the record,” she says.

If the will becomes public, beneficiaries can see who else gains from the will, which is concerning if a client wants to avoid family squabbles. In B.C., not only beneficiaries see the will if it goes to probate. Anyone who would inherit if the client died without a will does too. So if a client cuts her kids out, they’ll still see a copy.

Elaine Blades, director for estate and trust products and services for Scotia Private Client Group in Toronto, says it’s possible to draft a will so the names of beneficiaries or their entitlements don’t appear.

There’s a tradeoff, though. An ambiguous will risks not having the client’s intentions fulfilled when questions arise about amounts or identities of the beneficiaries. If legal challenges are filed, the will goes public.

“If there’s a dispute in the estate—if the spouse says you didn’t give me enough, I want more—then the courts will look at what went outside of the will,” says van Wachem.

Litigation also brings items that are normally hidden—like joint assets, directly designated assets, assets that passed out of the estate based on survivorship, and corporate tax planning, such as an estate freeze—to light.

The options

Clear language within the will solves a lot of problems at the outset. But real anonymity means avoiding bequeathing large sums within a will.

“If wealthy families want to pass on money anonymously, they would be [better advantaged] to do it using a trust during their lifetime because it’s a private document, unlike a probated will,” says Blades.

Here are other options.

Dual wills

In Ontario and B.C., it’s possible to create two wills: one to govern administration of assets that must be probated (such as real property), and one with the rest. This is usually suggested for multi-million-dollar estates.

“If you read the two wills together, you’ll see they fit like a hand in a glove, so the administration of the estate is virtually identical [in both wills],” says Gordon Cooper, associate counsel with Miller Thomson LLP. “The difference is, you’ve removed significant assets like shares of a private company out of the estate that will be probated.”

This can also conceal any assets your client doesn’t want publicized.

“We had a donor coming to us who inherited a nine-figure estate,” says Burrows. “We checked the court records and there was nothing there. Everything had been reorganized in advance.”

The downside:

In B.C., a spouse or child can contest a will for six months after it’s probated. But if only one of the two wills goes to probate, the clock never starts on the second will, says Mary Hamilton, associate counsel with Davis LLP in Vancouver.

“Because so many of our clients are in a second marriage, not having that limitation period running is a problem. We have no certainty an unhappy child or spouse wouldn’t challenge the will down the road.”

Secret trust or power of appointment

Use a secret trust when a client has a beneficiary he’d rather keep unknown.

“A classic example is a child of a mistress,” says Blades. And Hamilton adds B.C. provincial law mandates a will be fair to all children, so a parent may use a secret trust to give the “good son” more after death.

“The trust is set up to benefit that person, but his or her name does not appear anywhere. Only the trustee knows who’s getting that money. So although the other beneficiaries may know this trust is there, they don’t know who the beneficiary is.”

The trust simply directs the money should go to a known third party. The client would also create a private agreement, written or oral, to have the third party distribute the assets to that child after the client dies.

Cooper says another way to designate a secret beneficiary is through the use of a power of appointment. In his will or a written deed, the client would designate the authority to dispose of his property on his behalf. As with the secret trust, the client would tell the appointee how to distribute the property.

The downside:

That third party could simply take the money and run. That’s a breach of trust, but no one else knows about the arrangement.

Named beneficiaries

Provided there is no dispute on the estate, life insurance with a named beneficiary will transfer assets to that beneficiary while avoiding probate. It’s a private document. The same applies to registered plans, pensions and other assets with named beneficiaries.

The downside:

If the will goes to litigation, these arrangements will come to light.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.