Applying a multiple will strategy for probate reduction and privacy

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At issue

 

While we most often speak of a person’s last will and testament in the singular, the practice of using multiple wills has a long history. There are a number of reasons why a testator might want to have more than one will, most commonly:

  • Reducing probate tax in jurisdictions where that is a material concern,
  • Protecting the privacy of the deceased and beneficiaries by shielding against potential disclosure of the nature and value of assets in public/court documents and processes, and
  • Providing for less costly, more timely and generally less complicated procedures for dealing with real estate outside the deceased’s home jurisdiction.

In a purely domestic arrangement, the usual process is for the lawyer to concurrently prepare a primary will that deals with the estate generally, and a secondary will that carves out certain assets. This secondary will is often called the ‘non-probate’ will, assuming probate reduction is a prime motivation.  Though probate is a small percentage cost to an estate, where multi-million dollar assets such as private corporation shares are involved, the absolute dollar cost can be substantial.

 

Where foreign real estate is added to the mix, things can be even more challenging. Coordination is not only required among documents, but also from one lawyer’s office to another. 

 

Clearly, informed intentions and coordinated professional advice are critical to reaping the benefits of this sophisticated strategy.

 

Granovsky Estate v. Ontario, 156 DLR (4th) 557

 

Heard in 1998, this case involved a carefully executed dual will strategy isolating $25 million of private corporation shares in a secondary will.  The Ontario government sought to add the shares to the $3 million in the primary will for calculation of the probate fee (now known as estate administration tax).  This would increase the probate fee by $375,000 (in 1995 dollars).

 

Ontario Estates Act section 53(1) required that probate fees were to be paid “upon the value of the whole estate, including the real estate as well as the personal estate.” [emphasis added]  However, section 32(3) allowed for a limited grant of probate allowing an applicant to “set forth in the statement of value only the property and value thereof intended to be affected by such application or grant.” [again, emphasis added]

 

The court considered multiple wills cases as far back as the late 1800’s, reviewed the evolution of the current statutory provisions, and even marked the origin of probate fees in 1358. Those fees originally applied only to personal property, not real estate. 

 

With respect to the Ontario legislation, the judge noted that “[it] was later added as real property within the jurisdiction, and this would account for the “whole of the estate” in s. 53 of the Act.”  So while s.53 extends the probatable estate to include real estate, s.32(3) allows a testator to select which assets will be governed by a given will, including using a secondary will for assets that do not require probate.

 

McLaughlin v. McLaughlin, 2014 ONSC 3162, 2014 ONSC 5046, 2015 ONSC 3491, 2015 ONSC 4230, 2016 ONSC 481

 

In an effort to reduce probate/estate administration tax, a testator’s secondary will purported to deal with one parcel of real estate separate from other assets. Unfortunately there were some clerical drafting errors that duplicated bequests from the primary will, and there was no residue clause.

 

The case serves as a lesson as to the need for carefully coordinated drafting. As well, it illustrates how longstanding family conflict (over 20 years in this case) can carry through to estate turmoil, with the family returning to court five times, though in fairness two of those dates were to address costs rulings. 

 

Practice points

 

  1. Granovsky enables the use of multiple wills to reduce probate (estate administration tax) in Ontario, and it has been followed in some provinces. However, some provinces specifically disallow the strategy, so a qualified lawyer should be consulted.
  2. Bear in mind that establishing the strategy and keeping it up-to-date requires some cost and effort.  The documents must be drafted such that they do not revoke one another, and so that no conflicting double-dealing arises.
  3. As well, the wider the variety of assets referred to in the documents and the more frequent those change, the greater the cost of re-drafting and the possibility that something may fall between the cracks.

 

As published in The Insurance & Investment Journal by Doug Carroll Aug. 16, 2016  07:00 a.m.

 

For assistance coordinating the legal, tax and financial planning aspects of your estate to avoid problems tomorrow, talk to an advisor at Four Points Financial Solutions by calling 1-866-2335-0004 today.