Use Multiple Wills to Save $$$
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, contact me (Michael Carabash) or David Mayzel.
Now, this blog is useful for a dentist who has a lot of money tied up in their dentistry professional corporation. Basically, if the value of their shares is over $1-million, then they should seriously consider getting a lawyer to prepare TWO Wills for them – in order to reduce the amount of taxes their estate would have to pay when they ultimately kick the bucket. If the value of those share of the dentistry professional corporation is exactly $1-million, then having multiple Wills will save the dentists’ estate $14,500 (not too shabby!). Now, before I get into the nuts and bolts of why having multiple Wills is the answer to saving this kind of money money, here’s some background information about what happens when a dentist dies in Ontario and HAS only ONE Will.
Dying in Ontario: Getting the Will Probated
So when a dentist dies in Ontario, the banks or land registry offices or insurance companies won’t deal with just anyone claiming to be responsible for administering their estate. They want to see that the Estate Trustee (i.e. the person actually appointed under a Will and confirmed by a Court to administer the deceased’s estate) is holding a certificate from the Court. They won’t simply accept that a Will being put in their face is the actual Will or has not been contested in court. They don’t want to be held liable if something went wrong and they accidentally transferred property or money to the wrong party without the requisite authority. That’s why they demand to see that the Will has been probated (i.e. verified by a Court). Evidence of this is a “Certificate of Estate Trustee” issued by a Court.
That certificate will either be called a “Certificate of Appointment of Estate Trustee With a Will” (if the deceased had a Will) or a “Certificate of Appointment of Estate Trustee Without a Will” (if the deceased died intestate or without a Will). Now, as part of the process of getting a Certificate, the estate will need to pay Estate Administration Taxes (formerly called Probate Taxes). Here’s how it works…
Paying Estate Administration Tax
Estate Administration Tax must be paid at the time the application for a certificate of appointment of estate trustee (with or without a Will) is filed. So says rule 74.13 of the Rules of Civil Procedure and 2. 2(1) of the Estate Administration Tax Act, 1998.
The amount of estate administration tax payable is based on the value of the assets of the deceased’s estate at the time of his or her death. It’s calculated as follows: $5 per $1,000 or part thereof, for the first $50,000, then $15 per $1,000 or part thereof by which the value exceeds $50,000 (s. 3, 2(6) of the Estate Administration Tax Act, 1998). No tax is payable if the value of the estate is $1,000 or less.
So here’s an example: if the assets of the deceased’s estate at the time of death is $25,000, then the estate administration tax will be $5/$1,000 x 25,000 = $125. If the assets were valued at $25,001, then the estate administration tax will be $5 more, or $130 because that $1 is part of the next $1000.
So, by doing the calculations, we can see that $250 of estate administration taxes will be paid on the value of the estate up to the first $50,000; then, if the value of the estate is actually $1-million, then the remaining $950,000 will generate estate administration taxes of $14,250. Adding up the previous $250 with this $14,250 results in estate administration taxes of $14,500 if the value of the estate is exactly $1-million!
Note: no tax is payable where the application is for a certificate of appointment of SUCCEEDING estate trustee with or without a Will or a certificate of appointment of estate trustee during litigation. In these cases, the legislation prescribes a certain fee which is payable.
Can you get around paying Estate Administration Taxes?
Believe it or not, there are a few legitimate ways in which you can get around having your estate pay Estate Administration Taxes. Clearly, you can dispose of your assets during your lifetime (either by selling or gifting them) and thereby reduce the asset value of your estate. But this may still trigger tax consequences (depending on the type of asset you’re transferring, its fair market value on the date of the transfer, it’s original cost, and the person who is receiving it). So what’s the solution? Multiple Wills!
So how can having multiple Wills reduce your Estate Administration Tax? Basically, the idea is that you can probate one Will dealing with certain assets but avoid having to probate another Will dealing with other kinds of assets. The idea goes as follows: one Will deals with the assets for which Estate Administration Taxes will be required. This includes things like (but is not limited to) bank accounts, lands registered in the Land Titles System, shares or debt instruments of public companies, term deposits, GICs, and brokerage accounts, etc. Banks and the Land Registry Office simply need to see that the Will has been probated and a Certificate of Estate Trustee issued before they allow anyone to do anything. So Estate Administration Taxes will be paid as part of probating these assets.
But the other Will will deal with the assets for which Estate Administration taxes will not be required. This includes things like (but is not limited to) assets for which a beneficiary is named or designated (e.g. life insurance, pension plans, RRSPs, RRIFs); assets held jointly which, upon your death, devolve to the surviving co-owner; real estate registered under the Registry System and not situate in Ontario; personal items; and shares and debt instruments of private corporations. Now this is where your privately held shares of a dentistry professional corporation come into play: the value of those shares can be separated from your other assets and NO probate will be required to verify this particular Will! Now it’s all becoming clearer (I hope).
So what’s the typical cost of doing multiple Wills? Well, it depends on your specific circumstances (e.g. dealing with estate trustees, properties, beneficiaries, specific gifts, cash payments, etc.), but paying $2,000 to get 2 Wills to save close to $15,000 seems reasonable! You should also consider getting your Power of Attorney for Personal Care, Power of Attorney for Property and Living Will all done at the same time too!