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Transferring Wealth Efficiently

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As we move towards and progress through the largest intergenerational transfer of wealth in history, people are looking for ways to improve the efficiency of this transfer, especially with respect to taxes. As a result, there has been a proliferation of creative strategies to reduce the amount of estate administration tax (commonly called "probate fees") which will become payable on an individual's estate. One of these strategies is to prepare multiple wills.

Ontario does not have inheritance tax in the traditional sense. However, in order to demonstrate authority to deal effectively and administer certain kinds of estate assets, the person named as estate trustee under a will must apply for a probate certificate (now called a "Certificate of Appointment of Estate Trustee with a Will"). As part of the process, estate administration tax will need to be paid on all of the assets governed by the will for which the estate trustee is seeking the Certificate of Appointment.

Some assets, including certain corporate assets, can be transferred to the beneficiaries of an estate without a Certificate of Appointment. Including these assets in a will for which probate is being sought will require estate administration tax to be paid on these assets.

To avoid this, testators with these kinds of assets often prepare multiple wills. The first will would deal with all of the assets for which a Certificate of Appointment is required. The second will would deal with the corporate assets. The estate trustee would only need to seek a Certificate of Appointment for the will that requires it, and the estate can avoid paying estate administration tax on the corporate assets governed by the second will.

When an application is made for a Certificate of Appointment of Estate Trustee, the will becomes a matter of public record. Having a secondary will for which no such application is made can provide a means for a testator to make testamentary gifts in a way that is private and that is not open for anyone and everyone to see.

As with anything, when you add more moving parts, there is more room for error. The added cost of preparing and administering multiple wills and the increased risk that something may go wrong with one or both wills dictate that this strategy should only be employed under appropriate circumstances.

One particularly common error is that each of the two wills may include a standard revocation clause, which revokes all prior wills executed by the testator. If both wills include such a clause, only the second one to be executed is valid because it revokes the first. Often, it will be impossible at a later date to determine which will was signed first.

Another potential pitfall with multiple wills is that they may become a matter of public record if the estate becomes contentious and litigation commences.

Multiple wills have historically been used where a testator has assets in different jurisdictions as well. One will may have been prepared for each jurisdiction to be governed according to the law of the land in each place.

Today, however, multiple wills are mainly used as a way to reduce estate administration tax. The practice was approved by the courts over a decade ago in the case of Granovsky Estate v. Ontario (1998), 21 E.T.R. (2d) 25 (Ont. Gen. Div.). Since then, multiple wills have become an increasingly popular estate planning tool. As testators continue to search for ways to streamline the transmission of wealth to the next generation, innovative estate planning tools like multiple wills can be expected to increase in popularity in the future.

Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.