We recently acted in the first BC court case to confirm that multiple wills may be used to reduce probate taxes for business owners.
We acted for the estate of a deceased private business owner. During his lifetime, we designed his estate plan to use two wills. One will covered most of his estate assets. However, his private company assets were “carved out” to be dealt with by the second will. Upon his death, only the first will was submitted for probate with the court. The second will (that dealt with his private company shares) was not required to be probated. No probate fees will need to be paid on our client’s valuable private company assets. The court confirmed the effectiveness of the strategy under BC law (see Re Berkner (Estate), 2017 BCSC 619).
Why is probate required?
Probate is a court process that “proves” or confirms the validity of a will and the executor’s authority to act under it.
When a person dies, some assets are automatically transferred. These assets may have beneficiary designations (such as insurance policies, RRSPs, RRIFs, or TFSAs). Or they may be co-owned with a right of survivorship. For these assets, the beneficiary or surviving owner can take ownership simply by proving the death; the deceased’s will is not required.
However, many assets have no provision for an automatic transfer on death. Such assets include a house, investment account, or private company shares that are owned solely in the deceased’s name. With these assets, the deceased’s will must be used to determine how the assets will be distributed (to the beneficiaries) and who will do it (the executor).
The will gives the executor the authority to collect the assets. The executor should be able to exercise this authority by simply providing a copy of the will and proof of the death.
However, the title of many of these assets is controlled by third parties (the Land Title Registry or a financial institution). These parties often are not willing to accept the executor’s authority based solely on the will. They require that the validity of the will and the executor’s authority also be confirmed by the court. The process of securing that confirmation is called “probate.”
Shares of closely-held private companies are different from these other assets. The title of the shares is not controlled by a third-party, but rather by the company’s directors. The BC Business Corporations Act specifically confirms that these directors can authorize a transfer of the deceased’s shares based on the will alone, without requiring a probate of the will.
What happens during probate?
If probate is required, the executor must send notices and provide the court with sworn information about the deceased, the will, and the estate assets. The executor must list all of the deceased’s assets that are dealt with under the will (this includes even assets for which probate was not required).
The province also imposes a probate tax during the court process. This tax of 1.4% applies to the value of all the assets that have been listed ($14,000 per $1,000,000).
Our business owner client, who had both real estate and a private company, would have encountered a dilemma if he had just one will (as most people do). After his death, the will alone would be sufficient authority to deal with his private company shares – nothing further would be required. However, the Land Title Registry would refuse to change the title of his real estate until the will was confirmed by probate. During that probate process, the executor would be required to list not only the real estate, but also the private company shares (even though probate was not required to deal with them, the shares would still be an asset under that single will – they could not be omitted from the listing). Then, the probate tax of 1.4% would be charged on all of the listed assets, both the real estate and shares. Instead of a probate tax of perhaps $14,000 on the real estate, the estate would also pay an additional tax of more than $40,000 on the shares.
How Do Multiple Wills work?
Instead of just one will that deals with all of the assets, our client created two separate wills. The primary will dealt with almost all of his assets including his real estate but specifically excluded his private company shares. The secondary will dealt with just his private company shares.
After his death, the secondary will was used to transfer the company shares without any need for probate. By contrast, the transfer of the real estate did require a probated will. However, this only required a probate of the primary will. The list of assets for that probate process did not need to include the company shares, since the primary will did not deal with them. No probate tax will be paid on the shares. The estate saved more than $40,000 of tax.
This estate plan method is especially useful for clients with shares in family companies, or valuable art. However, careful attention is required to ensure that it is effectively carried out.
- To be effective under BC law, the two wills must have different executors, and the drafting must coordinate their respective powers and duties.
- This plan would not be sufficient on its own if there is a risk of claims by a spouse or child to challenge provisions made in the wills. For example, a blended family would typically require additional planning strategies.
- Certain income tax rules may be affected by the use of more than one will.
A multiple will estate plan can save a significant amount of probate taxes and can provide some privacy for company matters. However, the strategy is not without some complexities. It must be carefully implemented by experienced estate planning advisors.