In Ontario Two Wills are Better than One
Lawyers are notorious for making things more complicated than necessary. “A lawyer is a person who writes a 10,000-word document and calls it a ‘brief” said Franz Kafka.
You ask your lawyer for a will, you say that everything is to go to your spouse and then equally among the kids, and the lawyer says: “You should have two wills – one for probate assets and the other for non-probate assets.”
Why? The answer, as so often happens in our business, is to save tax.
If title to property when you die is registered in your name, your estate trustee (formerly known as your ‘executor’) will have to prove to others that he or she is authorized to transfer title from you to your estate, and from there, to sell or distribute the property among your beneficiaries. Simple enough, but how does your estate trustee prove this?
In some situations, all your estate trustee will need is proof that you died (a death certificate) and the other parties will recognize the authority by seeing a true copy of your will (sometimes, a notarized true copy). The other party may require that your estate trustee swear a declaration that it was your last will and indemnify them in case of error. This should be enough for the transfer of personal and household effects within the family, or the transfer of shares within a family holding corporation. The parties know each other and should be satisfied with this level of proof.
In other situations, the other party will require the court to certify that the will presented is indeed your last valid will. For example, suppose you leave an extensive portfolio in a financial institution in your name, and your estate trustee goes to the institution after you die and demands that the portfolio be transferred into their name as your estate trustee. Of course, the institution would not take this risk. They would require a court certificate confirming that your estate trustee is properly authorized (a “Certificate of Appointment of Estate Trustee”, formerly known as “probate”).
So, this is where the two wills strategy comes in. Until about thirty years ago, the court would charge a relatively modest fee to process an application for probate. Then, in the 1990s, the fees were increased and converted into the Estate Administration Tax. The tax is currently about 1.5% of the value of assets flowing through the will probated with the court. It is not nearly as large as income taxes on death, but it is still about $15,000 for every $1 million in the estate, with some exceptions.
Which gets back to lawyers making things complicated. As the tax rates went up, some smart lawyers (I can’t claim credit for this idea) started using two wills to step around the tax. Using multiple wills was nothing new. For hundreds of years, testators (yes, that’s what we call them) used different wills for different assets, sometimes in different jurisdictions, to simplify the administration of estates, or to separate the administration of certain assets from other assets. Well, the idea was to use one will for the assets that are going to require probate (and pay the tax on those) and use another will for the assets that won’t require probate. That way, the 1.5% tax will only apply to the assets flowing through the will probated with the court.
This is all better explained in our article here.
It’s not necessarily the lawyer who makes things complicated. “Would you like to save your estate $30,000 in probate tax by making things a little more complicated by drafting two wills?” You can guess the answer.