Many Canadians will leave an estate subject to various taxes, including probate tax. Although probate is not always required, your executor may need to obtain a grant of probate to fully administer your estate.
Probate is a procedure that validates your will and confirms the authority of the named executor to act on behalf of your estate. Third parties, such as financial institutions, may require that a will be probated before releasing assets – probate ensures they are protected from legal liability should the executor distribute assets to the wrong person. While probate taxes vary among provinces, in Ontario the tax is $250 on the first $50,000 of the value of the estate and 1.5% of the value above this level.
One strategy to reduce probate tax is to use multiple wills. For example, one will directs the distribution of investments and real estate which require probate, while a second will refers to remaining assets that do not require probate, such as personal effects. Probate taxes only apply to the assets included in a probated will.
The structure and wording of the wills is of vital importance and we strongly recommend consulting a lawyer expert in the field when drafting multiple wills. There may still arise situations in which a secondary will might require probate, such as contestation by a beneficiary.
Not all provinces recognize multiple wills. Some provinces have very low probate taxes, mitigating the value of the strategy.
Please read our article on Multiple Wills for more information.
Be sure to talk to your financial advisor, and especially your lawyer, when considering implementing multiple wills.