Multiple Wills as a Strategy to Save on Probate Taxes
Having multiple Wills is one of the strategies used to reduce or avoid the amount of taxes payable by the estate on death (probate taxes).
In Ontario, probate or estate administration taxes (the terms “probate tax” and “estate administration tax” are used interchangeably here) are payable by the estate of the deceased and are assessed based on the total value of the estate. In assessing the value of estate, all properties, including real estate, bank account, investments, intangible properties, business interests, and motor vehicles are included. Probate taxes are payable when the trustee or estate representative applies to the Court for a Certificate of Appointment of Estate Trustee, which allows the trustee to deal with, and disburse the assets, among beneficiaries.
The rate of probate taxes, currently, is at 0.5% on the first $50,000 of the value of the assets and 1.5% on the value of estate exceeding $50,000. If the value of estate is $1,000 or less no probate tax is payable. As of January 1, 2020, however, no estate administration tax will be payable on the first $50,000 of the value of the estate.
In order to reduce or avoid paying probate taxes individuals can execute a primary and a secondary Will, while ensuring that the secondary does not revoke the primary, such that both Wills remain effective concurrently. Each of the primary and secondary Wills deals with separate assets of the person. Typically, primary Will deals with assets that require to be probated and the secondary Will holds the assets that do not require probate such as jewelry and antiques. Each of the Wills typically outline the ability of estate trustee to determine which assets require probate, using what is often referred to as “allocation clauses”. Therefore, upon passing of the testator, estate trustee will obtain a Certificate of Appointment of Estate Trustee using only one of the Wills and paying probate taxes on assets held in that Will.
The practice of using Multiple Wills – as they are typically drafted by lawyers – was called into question in Milne Estate (Re), 2018 ONSC 4174. Before the appeal of that decision to the Divisional Court was heard and reasons released, thousands of Wills drafted in the described fashion were called into question and risked being nullified. Thankfully, the appeal overturned the prior decision.
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