Why Would You Have More Than One Will?
Two Wills? Lawyers are notorious for making things more complicated than necessary.
You reach out to a lawyer for a Will: you say that everything is to go to your spouse and then everything is split equally among your children. It all seems quite straightforward, and you could almost fill in a form online and not need to speak with a lawyer.
However, many consumers are not aware that “You should have two Wills – one for probate assets and the other for non-probate assets.” Why and what exactly does this mean? Do I pay more for two Wills? The answer as so often happens in our business to have an understanding: the purpose of two Wills is to save taxes that can be avoided upon your passing.
If title to your residential property when you die is registered in your name, your Estate Trustee (formerly known as your ‘Executor’) will have to prove to others that he or she is authorized to transfer title from you to your Estate, and from there, to sell or distribute the proceeds among your beneficiaries. Simple enough, but how does your Estate Trustee accomplish this?
In most situations, all your Estate Trustee will need is proof that you died (a death certificate) and the other parties will recognize the authority by seeing a true copy of your Will (sometimes, a notarized true copy). The Estate Trustee, often with the help of a lawyer, then obtains a court certificate confirming that your Estate Trustee is properly authorized (a “Certificate of Appointment of Estate Trustee”, formerly known as “Probate”). In order to achieve this situation, funds have to be paid into Court to cover the cost of the Probate fees which usually run at 1.5% of the value of your Estate. So, you can imagine when you add a house in Toronto to funds in investment products and savings accounts and maybe a cottage you might be looking at paying 1.5% on 3-4 million dollars of Estate assets. Around $45,000.00+!
Until about thirty years ago, the Court would charge a relatively modest fee to process an application for Probate. Then, in the 1990s, the fees were increased and converted into the Estate Administration Tax. The tax is currently about 1.5% of the value of assets flowing through the Will probated with the Court. It is not nearly as large as income taxes on death, but it is still about $15,000 for every $1 million in the estate, with some exceptions.
So, this is where the two Wills strategy comes in and some Probate planning. Which gets back to lawyers making things complicated (or, for you, possibly much less in taxes). As the tax rates went up, some smart lawyers started using two Wills to help reduce the Probate tax to be paid. Using multiple Wills was nothing new. So, the idea was to use one Will for the assets that are going to require Probate (and pay the tax on those, for example, real estate) and use another Will for the assets that won’t require probate (for example insurance products, RRSP, TFSA, RIFF). These products allow you to name a beneficiary and we usually encourage a primary and contingent beneficiary so that the funds flow directly to your beneficiary and do not have to be Probated. That way, the 1.5% tax will only apply to the assets flowing through the Will Probated with the Court. But it can even get better if you have a business. A Secondary could allow you to shelter the value of the business and again avoid Probate fees. Essentially, shares in a private corporation do not need “Probate” to be transferred. So why pay Probate fees on the value of those shares?
Most Will bequests are fairly common, but some aren’t…read about some strange Will bequests
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This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.