In this installment of my blogs on multiple wills (for probate planning) I will focus on the important issue of defining the assets that will be governed by the Primary and Secondary Wills. As in my prior blogs, I will use the term “Primary Will” to refer to the will that is intended to be probated and “Secondary Will” to refer to the will that is not intended to be probated.

The use of multiple wills for probate planning purposes (as distinct from dealing with assets in different jurisdictions) received judicial approval in Ontario in Granovsky Estate v. Ontario, 1998 CanLII 14913 (ON SC). In that case the testator made two wills, a Primary Will and Secondary Will. The Primary Will defined the term “Primary Estate” to be all of the testator’s property wherever located other than the shares of several named private companies, amounts owing to the testator from the private companies, and any assets held in trust for the testator by the private companies. The Secondary Will defined the term “Secondary Estate” to be only the private company shares, amounts owing to the testator by the companies, and assets held in trust for the testator by the companies. In other words, the Secondary Estate consisted of only those assets for which probate would not be required, while the Primary Estate captured all other assets. In this way all of the testator’s property would be governed by one or the other will and there would be no “slippage”.

In addition to the above structure, it is also important to consider the content of the Primary and Secondary Estates. That is to say, how should the testator’s assets being allocated between the two wills? This question engages several fundamental principles concerning the authority of an executor, the nature of probate, and when probate is required. When a person dies with a valid will, the executor named in the will derives his or her authority from the will itself, not from the probate. Probate confirms the authority of an executor and is evidence of the executor’s authority, but it does not grant that authority. Probate also confirms that the will is valid and that it is the testator’s last will. Whether or not a particular will must be probated will depend to a large extent on the nature of the testator’s assets. For example, probate will be required if: (a) there is an express legal requirement for probate in order to administer a particular asset (e.g. real property registered in Land Titles); (b) a third party with custody of an asset insists on probate in order to transfer title to the executor (e.g. large cash deposits); or (c) a third party with whom the executors wish to contract insists on probate as a condition of entering into the transaction (e.g. sale of valuable artwork).

In Ontario, the most common assets that form part of the Secondary Estate are the assets considered in Granovsky, i.e. private company shares, amounts owing to the testator by the private companies, and assets held in trust for the testator by the private companies. Other assets that are often dealt with in a Secondary Will include partnership interests, personal and household effects, debts owing to the testator by individuals, real property in the Registry system, and sometimes real property in Land Titles to which the “first dealings” exception to the probate requirement applies. However, it is important to note that allocating assets between the Primary and Secondary Estates is not a mechanical exercise of slotting assets into the above categories. Rather, in determining what assets should form part of the Secondary Estate the will-drafter should always consider whether there is a risk that probate may be required to administer a particular asset, bearing in mind the principles set out above.

Consider, for example, private company shares. These are generally included in the Secondary Estate because the Ontario Business Corporations Act gives the directors of a private corporation the discretion to transfer a deceased shareholder’s shares without probate. However, the directors are not required to transfer the shares without probate. This is not normally an issue in the case of a closely-held family business where the directors are related to the testator or are otherwise familiar with the testator’s affairs. However, in the case of a private company with arm’s length shareholders and directors, the directors may not agree to transfer the shares without probate. If the directors were to insist on probate, then estate administration tax would be payable on the value of all assets governed by the Secondary Will, and not only the value of the particular shares for which the probate is actually required, thereby defeating the planning.

In my next blog, I will continue this discussion and look at some additional risks in defining the assets that will form part of the Primary and Secondary Estates.

To be continued…