last-will-and-testament

Estate planners have long used multiple wills to deal with assets in different jurisdictions. But in some provinces, over the past 15 years the strategy has evolved into a tool for reducing probate fees.

In 1998, Ontario courts approved multiple wills for probate-fee planning with the Granovsky Estate v. Ontario decision. Granovsky made two wills. One was the secondary will, which dealt with his interests in four private companies, debts those companies owed him, and assets they held in trust for him. The other was the primary will; it dealt with all of Granovsky’s assets other than those governed by the secondary will.

Executors of his estate applied for probate only on the primary will. They didn’t do it for the secondary will because they could administer the assets without it. The government argued probate fees had to be paid on the value of the assets governed by both wills.

The court agreed with the executors that probate only had to be paid on the value of the assets governed by the primary will.

The strategy upheld in Granovsky, now commonly used in Ontario, was likely a response to the province’s tripling of probate fees in 1992. But its value varies province to province.

Alberta’s probate fees don’t exceed $450, regardless of the estate’s value. Quebec has no probate fees; only a filing fee of $150. Not surprisingly, there’s little incentive in these provinces to use multiple wills solely to cut probate costs.

But B.C., like Ontario, has high probate fees. The Granovsky decision ignited debate among B.C. estate solicitors about whether they could use the same multiple-will strategy. Legislation in B.C. that became effective this March has some concluding that it’s provided a clearer basis for using multiple wills for probate fee planning if separate executors are appointed for the non-probate will. That legislation is commonly known as WESA, the Wills, Estates and Succession Act.

Potential pitfalls

While the strategy isn’t difficult to understand, there are pitfalls estate planners must avoid.

Dual wills ended up working for Granovsky’s estate because the secondary will’s assets could be administered without probate. The directors of the private companies he had interests in were prepared to deal with the executors of the secondary will without probate, as often is the case with closely held family businesses.

But that isn’t always so.

Consider the example of Hogaard, who has interests in several private companies. He also owns real property and two cars, and has several bank and investment accounts, plus some personal effects. One of his private companies (let’s call it Opco) is in the process of being sold to an arm’s-length third party. Another two are family-owned, with Hogaard holding fixed-value preferred shares and his three daughters owning an equal number of common shares.

Hogaard, along with five other arm’s-length investors, has a minority interest in a fourth company, Investorco, which has an independent board of directors. Hogaard’s prepared multiple wills; the secondary will deals with all his private company interests, as well as his personal effects.

Hogaard’s situation has potential traps that illustrate the danger of overreaching with the definition of the secondary (non-probate) estate. If Hogaard dies before the Opco sale’s completed, there’s a risk the purchaser will only close with probate.

If the purchaser were to insist on probate, it would not only delay the transaction but also undo Hogaard’s planning. Probate fees would be payable on the value of all assets governed by the secondary will—not just the shares of the company being sold. A similar problem could arise with Investorco: the board of directors may not agree to transfer Hogaard’s shares on the basis of an unprobated will.

Third parties can rely on probate as judicial confirmation of an executor’s authority to deal with the deceased’s assets. The arm’s-length purchaser of Opco and the independent board of Investorco, not being familiar with Hogaard’s family and affairs, may want this protection before entering into an agreement with his executors or transferring Hogaard’s shares to them.

These examples show that simply preparing a secondary will doesn’t guarantee the executors will be able to administer the secondary (non-probate) estate without probate. The definition of secondary estate must be carefully considered: if the facts suggest it’s uncertain whether some assets can be administered without probate, it may be necessary to segregate those assets into a third or even fourth will. In Hogaard’s case, separate wills for Opco and Investorco would be a possible option.

When riskier assets have less value relative to assets the secondary will’s intended to protect, it’s often best to include them in the primary will and pay probate fees. Take, for example, a $100,000 painting versus $5 million in private company shares. You could put both the painting and the shares in the secondary will, or you can put the painting in the primary estate and the shares in the secondary will. The second option’s less risky: paying Ontario’s probate fees of about $1,500 is a better outcome than paying probate fees of $75,000 on the private company shares if an arm’s-length purchaser of the painting refuses to deal with the executors on the basis of an unprobated will.

So, when clients use multiple wills, make sure their planning isn’t undone by inadvertently including high-risk assets in the non-probate estate.

ACTION PLAN
Consider multiple wills for clients to reduce probate in B.C. and Ontario.

Originally published in Advisor's Edge Report

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