The double will structure is a unique planning opportunity available in Ontario. When a will is probated in Ontario there is an estate administration tax payable on the value of the assets governed by the will being probated. The tax is approximately 1.5% of the value of the assets, equal to $14,500 on a one million dollar estate.
Where there are two wills, one dealing with all the assets that require probate and one dealing with all the assets that do not require probate, the tax will only be charged on the value of the assets governed by that first will. Which means that no estate administration tax is payable on the value of the assets governed by the secondary will. Whether assets require probate is a matter of whether a third-party (such as a financial institution) will require proof of probate before transferring assets to the estate or intended beneficiary. Where assets can be transferred without the permission of these third-parties there is no need to have those assets subject to probate.
For example, where there are shares of a private corporation it is the directors of the corporation who determine whether to acknowledge the authority of the estate executor to deal with the deceased’s assets. An unrelated third party will need to see a probated will to ensure they are dealing with the right person, but because the director of the private corporation is usually also the spouse or family member of the deceased and knows that the will is the last will of the deceased (without the need for court approval) he or she can transfer assets without a probated will. The financial savings can be quite significant. If the corporation holds $500,000 of assets, for example, by having a secondary will in place to govern the corporate assets, the tax savings is $7000. If the corporation holds $2 million of assets the savings is $29,500, and so on.
In order to have the maximum flexibility and to keep as many assets out of the probated will as possible, we use a very broad definition for “excluded property”. The aim is to essentially exclude every asset that will not require probate to be transferred to the beneficiary (personal items, art, shares in a private corporation, etc.). Dual wills are prepared for both spouses regardless of how assets are currently held because the surviving spouse may acquire assets upon the death of the first spouse that would, if dual wills were not in place, be probated upon the surviving spouse’s death therefore reducing the value received by the ultimate beneficiaries.
Using two wills, referred to Primary and Secondary Wills or General and Limited Wills, is a planning opportunity that should not be overlooked by any owner of shares in a private corporation.