In my last blog on multiple wills for probate planning I began a discussion of some considerations when defining the classes of assets that fall into the “non-probate” will (which I refer to as the “Secondary Will”) and the “probate” will (which I refer to as the “Primary Will”).
I left off with the point that if a person has assets that could normally be dealt with under a Secondary Will, it is still important to consider whether probate may be required for the particular asset in the particular circumstances. The example I gave is a private company with arm’s length shareholders and directors who may not be familiar with the testator or the testator’s affairs. In those circumstances, the arm’s length directors may insist on probate and the protection it provides. Another important consideration for private companies is the nature of the company itself. Is it an investment holding company or an operating company? If it is an operating company, is to be transferred to a spouse or children or sold to an arm’s length purchaser? I have seen it happen where an arm’s length purchaser will not close without probate.
Similar considerations apply to other classes of assets:
- Personal Effects: Are there valuable items that will be sold or donated, such as art, antiques, a valuable collection, etc.? If there are valuable items, or items for which provenance is at issue, there is a risk that a third-party purchaser or institution accepting a donation could insist on probate before completing a transaction with the executors.
- Secured vs. Unsecured Debts Owing to Testator: Are the debts owing to the testator secured debts? It is important to ascertain whether probate will be needed to discharge the security. For example, if a parent loans funds to a child and takes back a mortgage, the parent, and upon death his or her executor, is the party who has authority to register the discharge, and the executor will need a Certificate of Appointment to do so.
- Arm’s Length Debts Owing to Testator: Is the debtor a family member or an arm’s length debtor? Debts owing by family members will generally pose less risk, whereas an arm’s length debtor may want evidence of the executor’s authority in the form of probate before repaying the outstanding balance.
- Real Property. Real property that remains in the Registry System can be dealt with without probate. In Land Titles, property that is jointly-owned can be transferred to the surviving joint tenant through a Survivorship Application without probate. However, probate is required to deal with property that was solely-owned by the deceased or owned by the deceased as tenant in common with another.
Two common and related strategies can be used to manage the above risks. The first is to restrict the definition of the assets in the Secondary Will to exclude the assets that pose some risk of tainting the non-probate estate. For example, the definition of private companies might be limited to only private companies with family members as shareholders, or it might exclude an operating company that is to be sold. Debts owing to the deceased should be restricted to unsecured debts, and the unsecured debts may be limited to debts owing by family members. To the extent real property is dealt with in the Secondary Will, it should be limited to property that remains in Registry, or property in Land Titles if it is held in a bare trust arrangement or qualifies for the “first dealings” exception (a discussion of the latter two being beyond the scope of this blog).
Of course, that begs the question of where to put the “risky” assets that are excluded from the definition of non-probate assets. If two wills are used, the risky assets excluded from the Secondary Estate necessarily fall into the Primary Estate and are subject to probate fees. However, another option is to use one or more additional wills to govern the risky assets so that the risk is isolated. This ensures that if probate is ultimately needed, the entire non-probate estate is not tainted. Additional wills are commonly used for such assets as valuable artwork or an operating company that is to be sold. As with any multiple will structure, a cost-benefit analysis should be done to determine if the anticipated probate fee savings warrants the additional planning.
If you use the terms “Primary Will” and “Secondary Will”, the third will would be called a “Tertiary Will” and, thanks to the internet, I can report that a fourth and fifth will would be a “Quaternary Will” and “Quinary Will” respectively. Your task for today is to casually use those in a sentence…