Estate Planning Using the Multiple Wills Strategy
Lee Schaffer
Senior Portfolio Mgr & Wealth Advisor C.I.M., F.C.S.I., P.F.P. Trusted, reliable team leader specializing in tax savings and customized, proven wealth management for the self-employed, professionals and retirees.
As part of your estate planning, you may look for ways to reduce or avoid taxes payable on your death, including probate taxes. There may be several strategies available to you. The use of multiple Wills is one such strategy that you may wish to consider.
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First, what are probate taxes?
When you pass away, your executor may be required to obtain a grant of probate in order to be able to fully administer your estate. Probate is an administrative procedure to validate a Will and confirm the authority of the executor named in the Will to act on behalf of the estate. Most provinces charge a tax when your Will is probated. Probate taxes range from a nominal or low flat fee in some provinces to a percentage of the fair market value of the estate assets (on average, 1.50% of the estate value).
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The Multiple Wills Strategy
The multiple Wills strategy involves segregating your assets so that different assets are subject to different Wills. For example, a “primary” Will may deal with assets that require probate in that jurisdiction, such as bank accounts, investment portfolios, and real estate. A “secondary” Will may hold the remaining assets that do not require probate, such as privately held shares or personal effects, such as antiques, art and jewelry.
Where this strategy is available, your executor has the choice to probate any of your Wills and probate taxes would only apply to the assets included in the Will being probated. By separating assets that may require probate from those that do not, you may therefore avoid paying probate on those assets that do not otherwise require probate.
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Implementation of the Multiple Wills Strategy
While this strategy may be appealing, its successful implementation can be thwarted by improper drafting and execution of the Wills. Care must be taken by you and your professional advisors to ensure that common pitfalls are avoided.
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Example of how multiple wills can be used to minimize probate taxes
Barry is the owner of a small privately owned business that is worth $500,000. He has a principal residence that is valued at $300,000 (no mortgage) and $40,000 in a non-registered investment account at RBC. Barry has no dependents and no spouse. He resides in Ontario.
What probate taxes would apply in the province of Ontario if Barry had one Will instead of multiple Wills? Probate in Ontario is $250 on the first $50,000 of the value of the estate and $15 per $1,000 of the value of the estate above this level.1 If only one Will is used, the probate tax payable would be $12,100. If multiple Wills are used, the probate taxes payable would be reduced to $4,600. Barry may save $7,500 by using a secondary Will to deal with the private company shares, provided that they do not require probate.
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If you are interested in learning more, reach out to Schaffer Wealth Management today to discuss your estate plan in more detail.