As most of you know by now, as part of my "you don't know what you don't know" series, I try to shed light on wealth management and planning subjects that may be missed by many people, and can save you and your estate significant money while keeping the taxman at bay. In this article, I’ll touch upon something that often goes missed – why you should often have multiple Wills.
Let’s start with the most important point of all – you should have a Will in place to start with. More than half of Canadians (~56%) don’t even have a Will in place as per Lawyers’ Professional Indemnity Co. (LawPRO), and only 35% that do have one that is up to date. So, over half of Canadians are set to have no say in what happens to their assets should they die, and the few that do have Wills haven’t kept them current. Almost a third of Canadian adults do not have a Will because they either do not know how to get started or believe they cannot afford one. A lawyer can get you all set for minimal cost and time spent, and it should go without saying that you will be saving your loved ones a tremendous amount of pain and suffering in the event of your passing, and one heck of a mess they may have to deal with – endless legal bills, bitter family disputes, as well as legal battles between siblings and/or their spouses for example – all because you kicked the can down the road or outright avoided this matter! Dying without a Will is called dying ‘intestate’ – essentially leaving all matters in the courts hands, and you don’t want that scenario to play out, believe me.
Now that you’ve put your primary Will in place, there is one layer deeper you need to go. And it could save your estate a significant tax bill on your eventual passing.
Probate taxes are a tax you have to pay on your estate when you pass, and is ~1.5% of your total estate value. This can add up, bigtime. The multiple Wills strategy involves classifying your assets as to whether they require probate or not. For example, a “primary” Will may deal with assets that require probate in your 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. So, 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. If you own your business through a personally-held corporation, probate tax can add up to a huge sum for example.
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?
As outlined in the chart (courtesy of RBC's Financial Advisory Support Team), 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. 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 would save $7,500 simply by using a secondary Will to deal with the private company shares. Imagine these figures if his estate values are even larger.
Note that there are a few scenarios where a secondary Will might require probate, like if the Wills are contested, where Wills set up trust structures, etc., so always get legal advice on this front.
Hopefully it’s clear that a) you definitely need an up to date Will in place, and b) you may well need two. Many of us are fearful of sitting down and doing a Will in the first place, but it’s something that you’re really doing for your family and loved ones (after all, YOU don’t technically need a Will because by the time the document is in effect you’ll be gone!).