Today’s blog is being brought to you by guest blogger, Fatima Husnain, Articling Student at Fasken LLP.
The use of multiple wills in estate planning is not a new concept for estate practitioners. To explain briefly, multiple wills are often created as an estate administration tax (“probate tax”) planning mechanism. One will (the “Primary Will”) governs assets that require a certificate of appointment of estate trustee (“probate”) to administer, one will (the “Secondary Will”) governs assets that do not require probate to administer and another will (the “Tertiary Will”) governs “other” assets. Additional wills such as a quaternary will can also be used in certain circumstances as described below.
The use of multiple wills is particularly useful for individuals that have significant assets in shares of a privately held company, often a family company. In the normal course, shareholders of a privately held company will not require a will to be probated in order for an estate trustee to administer the shares owned by a deceased individual. Rather, the shareholders will likely see the will itself as sufficient evidence.
Typically, assets such as bank accounts and real estate are included in a Primary Will. These are assets that will require the estate trustee to interact with third parties that will likely require probate from the court. Assets such as shares in a privately held company, as mentioned above, and personal effects, such as jewelry, are included in the Secondary Will as the estate trustee will be able to administer these assets without probate from the court.
As of January 1, 2020 the amount of probate tax payable for an estate is $15 for each $1,000 of the value of the estate exceeding $50,000. As a simple example, if the value of an estate on the date of the individual’s death is $500,000, and $300,000 of that amount represents shares of a privately held company and $200,000 of that amount represents the proceeds of a bank account, then the following could occur.
If the individual only has one will then the estate will pay probate tax on the entire value of the estate, including those assets where probate was not required, which is $6,750. If however, the individual has two wills and only the Primary Will governing the assets held in the bank account is probated, the estate will pay $2,250 in probate taxes. Depending on the value of the estate, having multiple wills can yield significant probate tax savings.
Beyond having a Primary Will and Secondary Will, there are some circumstances where a third, fourth or fifth will may be beneficial.
Individuals with foreign assets may consider a Tertiary Will to deal with their assets in foreign jurisdictions which may be subject to probate tax in those jurisdictions. By removing assets in foreign jurisdictions from the Primary Will and Secondary Will, the individual’s foreign assets governed by the Tertiary Will can be administered without the delay of obtaining probate of the Primary Will first.
Another use of a Tertiary Will is in circumstances where it is not clear if an asset will require probate or not, for example, an art collection. The individual may not want to include a particular asset in either their Primary Will or Secondary Will if there is a risk that the categorization of the asset is not accurate. By dealing with any ambiguous assets in a Tertiary Will, the individual can have confidence that their estate plan will not be impacted and their estate trustees can determine if the asset requires or does not require probate at the relevant time.
Care must be taken to ensure that all wills, especially in cases of multiple wills, are drafted correctly. If not, they could inadvertently revoke each other or deal with duplicate assets, thereby creating a conflict. If you think that multiple wills might be appropriate for you, you should obtain legal advice and retain counsel to prepare your multiple wills.