Consider two Wills

Consider two Wills to decrease probate costs

April 24, 2015

If you own shares in a private corporation or you have private business interests, this article will be of interest to you. We will talk about ways you may decrease the amount of probate fees you pay to the provincial government on your demise.

You will also be interested in the federalgovernment’s promise in the 2015 Budget to gradually decrease the rate of taxcharged on the first $500,000 of profit each year on active business income,earned by Canadian small business corporations.

The current federal rate is 11% (and zero in Manitoba, on the first $400,000 of such profits).  The federal government is proposing to decrease this to 10.5% starting January 1, 2016, going down by one half of 1% each year until bottoming out at 9% effective 2019 and beyond.

Let’s get back to decreasing probate fees on your estate.  Recall that your executor will take your last will and testament to the Provincial Court, in order to prove that this is the valid will. The court will provide a Grant of Probate, which provides assurance to financial institutions or other parties with whom you do business that they can rely on the validity of this Will, and not be subject to possible liability.

For example, if I passed away and had $200,000 in an investment account, my executor would ask that financial institution holding the account to transfer the money to the beneficiaries outlined in my Will.

Clearly, they want to make sure that this is truly my last Will, and that no one else is going to show up with another Will asking for the money after they’ve released it. Financial institutions are not in the business of attracting unwanted litigation or getting in the middle of family squabbles.

Probate gives them the assurance and the legal authority to follow the terms of that probated Will. So, clearly I need my Will to go through probate, to the extent that I will be asking third party financial institutions to distribute my estate according to my wishes.

But what if a substantial part of my estate does not need the cooperation of a financial institution?

This is the situation in many cases when people own shares of private corporations. In my example, let’s say I have a business or an investment holding company. Whether I own all the shares or my wife owns half, I can leave my ownership to her (or another beneficiary) and the transfer simply takes place in the minute book of the corporation. There is no third-party or financial institution involved.

Therefore, there may be a substantial portion of my estate that does not require that probate “stamp of authenticity” in order for distribution to take place. So…

The solution may be to have two Wills. One Will specifically mentions any assets that are held at financial institutions or with other third parties. The other will apply only to private investments that can be transferred without probate.

Only the first Will needs to be subject to probate, and the provincial government fees. In Manitoba, these are 0.7% of the probatable estate, but in some other provinces they are almost twice that high.

A reminder - only consider such a strategy under the guidance of a good lawyer who specializes in estate planning issues.

Other ways for the rest of us to avoid probate include naming specific beneficiaries (as opposed to “estate”) on our life insurance policies, RRSP and RRIF accounts, pension plans, life insurance segregated funds and any other vehicles that allow a beneficiary designation.

Holding assets in joint name with another person with right of survivorship also avoids probate, but be very careful with this, to make sure that you want that particular person to end up being the owner of the asset. For example, this works very well between spouses, but can be dangerous if used with children.  If a bank or investment account, house or other property is put in joint name with one child, when there are other children that you wish to share in the ultimate ownership of that property, that is fertile ground for a future estate dispute. 

So get good advice, and think it all through.

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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.

Please consult legal, tax, insurance and investment experts for advice on your unique situation.

David Christianson, BA, CFP, R.F.P., TEP, CIMis a financial planner and advisor with Christianson Wealth Advisors, a Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.

National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX).

National Bank Financial is a member of the Canadian Protection Fund.