By Kavina Nagrani, JD, TEP and Nicholas André, Student-at-Law

When can a Secondary or dedicated Business Will work to your advantage? Although the prospect of saving on probate fees is tempting, not all business owners and professionals will actually benefit from this form of estate planning.

A common tactic in estate planning involves using multiple wills to manage specific assets or assets in other jurisdictions. In Ontario, the commonly known “Secondary Will” or “Corporate Will” has become the norm for private business owners and professionals (like doctors, lawyers and accountants) who aim to avoid costly estate administration tax (aka probate fees) by carving out of the main Will, those privately-held business interests which in most cases do not require a probated Will to be transferred or disposed of at death.

However, as this article should convince you, business owners and professionals should not subscribe to the mantra that owning a privately held corporation means that you should have a second Will.

In determining if a second Will is appropriate an individual should:

1) Conduct a careful cost-benefit analysis;
2) Engage specialized practitioners, particularly for drafting;
3) Be advised of the risks involved

THE COST-BENEFIT ANALYSIS

In determining if a Secondary or Business Will is appropriate for you, the potential savings of 1.5% in probate fees must be weighed against the cost of getting professional advice and the drafting and ongoing maintenance of multiple Wills. By maintenance – we refer to the ongoing reviews and possible changes/amendments your Will may require throughout the evolution of your business in your lifetime. If the savings of probate fees would be significant, a secondary Will may be right for you. However, multiple Wills can lead to additional risks.

As the law currently stands in Ontario, a testator can have as many Wills as he or she sees fit, but with the implementation of each Will comes added risk and complexity. For example, if you have assets situated in a foreign jurisdiction, another Will that specifically governs the asset disposition in accordance with the laws of the particular state is advantageous. The use of a Secondary Will for non-Ontario assets is not uncommon, however, using third or fourth Wills to govern specific assets contributes to additional complexity and increases the odds of the “taint risk factor” explained below.

RISKS ASSOCIATED WITH MULTIPLE WILLS

Unknown Third Parties and Taint Risk

Secondary Wills only function if a third party does not require a Certificate of Probate to administer or accept the access on the testator’s death. It is not the court nor the government that makes the determination of whether an asset requires probate. Rather, it is the institution or third party with whom an estate representative is dealing with respect to a particular asset that makes that call.

In the majority of cases, closely-held businesses with succession plans that involve a dissolution of the company upon the testator’s death, a buyout of the testator’s interests by one or more existing shareholders, or the transfer of the testator’s shares in specie to one or more family members, will not attract the scrutiny of third parties. However, third parties unknown to a testator, the testator’s family, and a purported executor are unlikely to engage in a transaction—particularly in the case of high-value businesses, artwork, boats, and collectibles—without the authority of a court-certified estate representative. If this becomes the case, the Secondary Will must be submitted to probate, resulting in the same outcome as if the testator died with one Will. Care should be taken to mitigate the risk of “tainting” a Secondary Will with multiple assets that you expect to bypass the probate process. If even one of those assets requires a probated Will to be administered, the entire Secondary Will is considered “tainted” and probate fees must be paid on all of the assets governed by that Will. Where there is any likelihood of tainting a Secondary Will, a third or fourth Will is recommended.

Poor Drafting and Legal Changes

Multiple Wills are currently accepted legal practice in Ontario however, a legislative or common law change could affect the benefits of this strategy. Most estate law practitioners became very aware of this possibility when the Milne Estate was adjudicated resulting in a decision that subjected Mr. and Mrs. Milne’s secondary Wills to probate on account of questionable drafting. Luckily, practitioners were able to breathe a collective sigh of relief when the decision was overturned; but the reality that a legal change or poor drafting can severely impact your Will strategy persists.

CONCLUSION

Secondary Wills (aka “Business Wills”) can be an especially useful tool in your estate planning, but it is short-sighted to assume that this strategy always achieves actual dollar savings. A key takeaway should be alerting solicitors of the need to be more thorough in their inquiries as to business owner succession plans.

At NIKA LAW LLP we encourage the use of multiple Wills in a thoughtful manner and with the appropriate professionals engaged. Providing guidance in the Wills with respect to tax, valuations, timing of transfers and terms of third-party sales are too often overlooked in the drafting stage, yet a few additional sentences could result in hundreds of thousands of dollars in legal fees saved!

Disclaimer: The content of this post is not intended to serve as legal advice, but rather a general guide regarding the subject matter.

Footnotes:
1. In Ontario, “probate fees” refers to the Estate Administration Tax owed to the Minister of Finance, which is approximately 1.5% of the value of assets governed by the probated Will.
2. Milne Estate (Re), 2018 ONSC 4174.
3. Milne Estate (Re), 2019 ONSC 579.

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