Financial planners, accountants and lawyers have for many years recommended the use of multiple wills, particularly for entrepreneurs who operate businesses through private companies, and for investors who hold their portfolios in private companies. In recent months, due to a court decision in Toronto in the fall of 2018, there has been a great deal of attention paid to the concept of multiple wills and what they can be used for.
The purpose of using more than one will is to create a structure where assets can be transferred according to the wishes stated in a will, without having to obtain a certificate of appointment of estate trustee from the court—and without having to pay estate administration tax on the value of some of the estate assets.
Many assets cannot be transferred by an estate trustee without having a certificate of appointment of estate trustee with a will, commonly known as probate of the will. These assets mostly include real estate and bank and investment accounts with financial institutions.
Other types of assets can often be transferred without a certificate of appointment of estate trustee with a will. Most commonly, these include shares of private companies where the deceased was the sole shareholder, or where there are two or three other shareholders who will co-operate in allowing a transfer without a certificate of appointment.
Other types of assets that can be transferred without a certificate of appointment are cars and boats, art and antique collections, jewellery and other personal effects. If there are items that do not need a certificate of appointment to be transferred, and they are dealt with in a separate will, they do not have to be listed. Estate administration tax does not need to be paid on their value when an application for a certificate of appointment of estate trustee with a will is filed to get a certificate of appointment to allow dealing with the other assets like real estate and investment accounts.
Significant potential savings
With a properly prepared pair of wills, it is possible to save potentially thousands of dollars in estate administration tax by keeping the value of private company shares out of the calculations for the estate administration tax. There is no benefit in terms of income tax liabilities at death, but with estate administration tax fixed at 1.5% or $15,000.00 on every $1M of estate value, there are significant savings if a valuable business company or investment company can be kept out of the calculation.
The notion of multiple wills has been in use since the estate administration tax was raised from 0.1% to 1.5% in the early 1990’s. At first, assets that were covered in the separate will were mostly shares of private companies.
Over the years, planners have tried to expand the use of a second will that excludes assets from the tax calculation to cover any asset that can be transferred without having to provide a certificate of appointment of estate trustee with a will. In recent years, the language to identify what assets were to be separated has broadened to the point that many of these wills said basically that they covered “any asset that in the opinion of the estate trustee could be transferred without a certificate of appointment.”
Court decision assures validity of multiple will structures
A court decision in the fall of 2018 known as Re Milne Estate, caused a great deal of concern among lawyers and financial planners by determining that the will that was submitted to the court for a certificate of appointment of estate trustee with a will in fact was invalid, because the broad definition of the assets excluded into the separate will gave too much discretion to the trustees. The decision resulted in widespread email blasts by law firms to their contact lists, alerting clients to the fact that there was now a concern about the way in which their multiple wills were structured and suggesting various adjustments.
The decision in Re Milne Estate was appealed, and the decision of the Divisional Court which heard the appeal was released in late January. The Divisional Court set aside the earlier decision, and ruled that giving discretion to the estate trustees to decide which assets should be handled under the will used for the application for a certificate of appointment of estate trustee with a will and which assets should be assigned to the other will, was valid.
In short, this means that existing multiple will structures are valid. Individuals who are setting up wills, and have assets like private company shares, can safely use structures where there is a separate will to exclude assets like private company shares from the calculation of the estate administration tax.
Margaret Rintoul of Blaney McMurtry LLPL has over 35 years of experience in estate planning, litigation and administration, adult guardianship and power of attorney matters and draws on a wealth of technical knowledge and practical experience. As a mediator she uses this combination of skills to help the parties reach creative solutions that will lead to lasting results. As counsel, she has years of experience before the courts in effective advocacy for clients. As an estate planning and administration lawyer, her broad and extensive experience enables her to reach solutions quickly and effectively.