If you are a business owner then the following tax planning strategy should be considered as an integral part of your estate plan as it may result in the avoidance or reduction of substantial probate fees.
Probate is the legal process of having a Will validated by the Court and it also confirms an individual’s appointment as an Estate Trustee. If probate is required then the Court charges a fee known as “estate administration tax” (EAT) which must be paid at the time the application is made. The EAT is calculated on the entire value of the estate as at the date of death. In Ontario, EAT is calculated using the following formula: $5 per $1,000 on the first $50,000 plus $15 per $1,000 on the value over $50,000.
However, probate is not always required in order to deal with the assets in an estate. Notably, shares in a private corporation can usually be transferred without probate. The use of a multiple Will strategy in order to minimize probate taxes was sanctioned in by the Ontario Court in the case of Granovsky Estate v Ontario (1998).
The strategy is fairly straightforward. Basically, the testator (the person making the Will) signs one Will (known as the General Will) that governs those assets for which probate is required such as bank and investment accounts. A second Will (known as the Limited Property Will) is signed that is limited to those assets for which probate is not required such as private corporation shares. Upon the death of the testator, the Estate Trustees only submit the General Will for probate and as such, probate fees are only payable on those assets. The Limited Property Will is never submitted by the Estate Trustees for probate and EAT is not paid on those assets. For example, if your shares in a private corporation are worth $2,000,000 at the time of your death, then the use of a multiple Will strategy will save your estate approximately $30,000.00 in EAT.
However, business owners are not the only individuals who can benefit from the multiple Will structure. Most personal effects can be transferred without probate. Therefore if you own a number of antiques or a valuable art collection, then such assets can also be carved out under a Limited Property Will.
This strategy is just one possible estate planning tool that may be used in order to minimize taxes and fees payable by your estate. It is important to remember that estate planning does not work on a one-size-fits- all basis and a detailed review by an estate planning specialist of your personal and financial circumstances is necessary to develop a comprehensive estate plan that achieves your individual estate planning goals.