A Secondary Will, also known as a multiple will strategy, can be a financial planning tool to help you reduce the amount of tax your estate will have to pay after your death. It applies to some people, but not to all.
Some homeowners and business-people use it to ensure that more of their assets make it into the hands of their loved ones. If you only have a regular will (which we will call a Primary Will in this blog), like many of us do, then you run the risk that the government will take a larger amount of your estate via an Estate Administration Tax.
Today’s blog was co-written by Laroux Peoples, a Wills & Estates lawyer in Toronto at www.peopleslaw.ca, who is experienced in Secondary Wills.
1) Why do you need a Primary Will at all?
Before we get to Secondary Wills, here is a refresher on Primary Wills:
- A Primary Will sets out what happens to your assets, and if you have children, can set out when they get your assets.
- Makes it clear who has legal guardianship for any children under 18 years old.
- A Primary Will identifies the Executor (also called the Estate Trustee). This person will manage your estate after you are gone, is responsible for doing your last income taxes, distributes your assets to your beneficiaries, pays any debts, etc).
2) What is probate? Does it apply to all wills?
Here are some key points about probate:
- Probate is the process where: (a) if there is a Primary Will, the Court makes it official that it is the last legally known valid will; this is generally needed before financial institutions will release funds to your Estate Trustee; (b) If there is no will at all, it is the process to appoint an Estate Trustee.
- Not every estate will go through probate. Unfortunately, it is never fully known whether your Primary Will requires probate, until you die.
- Probate is driven by the type of real estate you have, if applicable, and/or the amounts and locations of your assets at different financial institutions. Both of these, on death, determine whether probate is required. For example, if your assets are at CIBC and CIBC requires a probate certificate to release your bank accounts to the Estate Trustee, then probate is required on all the assets that fall into your estate.
- Other key points to learn about include the fees, length of time, and who would need to complete the probate application for you. That is beyond the scope of this blog.
- During the probate process, part of the application process involves paying an estate “tax”. This tax varies from province to province. In Ontario, the Estate Administration Tax (“EAT”) is 1.5%, and it is assessed on estate assets valued in excess of $50,000.
3) So, what is a Secondary Will? Is it just for the wealthy?
- It is an estate planning strategy used mostly in Ontario and British Columbia to reduce the amount of EAT payable on an estate (the estate taxes are higher in those two provinces). For Canadians outside these two provinces, it can apply to those who own property in either Ontario or BC.
- It is not just for the wealthy.
- Here are two examples from Ontario of when a Secondary Will may be utilized:
- someone (i) owns their own incorporated business or (ii) is a shareholder of a privately-held family business that is incorporated.
- in Ontario, someone’s property is a Land Titles Conversion Qualified property AND it qualifies for the First Dealings Exemption. However, this option is only open to very few property owners. Whether your property qualifies for this requires research by a Wills and Estates lawyer. See example 3 below.
- There are other reasons for a Secondary Will but they are beyond the scope of this blog post.
4) If I have a Primary Will, do I also need a Secondary will?
At first glance, this may seem like overkill. But if you have assets that might attract significant EAT if they are in your Primary Will, putting them in a Secondary Will could reduce the EAT your estate would be required to pay. For example, you could put the shares of a private corporation, your personal effects (like jewelry) and your house (in certain cases) all in the Secondary Will.
Usually your Wills and Estates lawyer will need to prepare a new Primary Will and then also prepare a stand-alone Secondary Will.
5) How come my lawyer, accountant or my financial planner never mentioned this?
Not all lawyers, accountants or financial planners are familiar with this strategy, especially if they don’t have experience dealing with estates.
6) Let’s look at three examples:
Married or Common-law Couple who own a business and a house:
- Danielle and her partner Tracy own a family home and have some savings (TFSAs and RRSPs). They are also co-owners of an incorporated business, the shares of which were recently valued at $1.5 million dollars.
- If they each had a Primary Will only, then the shares of their corporation would become part of their probated estates.
- The EAT payable just on the shares alone would be $21, 750.
- This tax would be on top of (1) any capital gains taxes owing, (2) personal taxes owing; and estate taxes payment on the other assets in their estates (for example, their house, any other properties, jewelry, etc).
- If Danielle and Tracy each had a Secondary Will, their combined estates would have saved that $21,750.
Example 2: Older Torontonian with older house purchase
- Anita is in her 80s. She purchased her Toronto home in the 1960s. Her home was recently valued at $1.6 million; it’s her biggest asset. She also has some minor savings.
- Her Wills and Estates lawyer discovers that Anita’s property is a Land Title Conversion Qualified property that also qualifies for the First Dealings Exemption (see above). As a result, it won’t require probate when she dies (meaning no estate tax will be due on the house), if she has a Secondary Will in place.
- On the other hand, If Anita only has a Primary Will and no Secondary Will, and dies still owning that property, the EAT payable for the home will be $24,000.
- Anita’s Wills & Estates lawyer would likely recommend: if Anita plans to remain in that home, to have a Secondary Will so that her estate can save $24, 000 in estate taxes.
Example 3: Family with raw land
- Hina and Hema are sisters and they own 10 acres of raw land in Ontario together, in addition to their own downtown city condos where they each live. They did not create a corporation to hold the land, and they own it personally. Their land was assessed at $6 million dollars.
- If they each have a Primary Will, upon their death their estates each would have to pay $45, 500 (1.5% on $3 million each) on their land. This would be in addition to any other estate tax owing on their other assets.
- Their Wills & Estates lawyer would likely tell the sisters:
(a) because they don’t own the land through a corporation, this reason for getting a Secondary Will does not apply to them; and
(b) If the raw land is registered in the (newer) Land Titles system instead of the (older) Land Registry system, the land is a probateable asset, and a Secondary Will will not change this; but
(c) if the raw land is registered in the (older) Land Registry system AND/OR it is Land Titles Conversion Qualified, AND it is also First Dealings Exemption qualified, then Secondary Wills may be a good strategy for them to save on estate tax.
7) Next steps: How do I know if should get a Secondary Will? Speak to an expert!
There are many elements of estate planning: wills, powers of attorney for both finances and care, life insurance, beneficiary designations on financial and insurance products; joint-ownership of land, in some cases, a Secondary Will, or even multiple wills (for example, for those who may have assets in more than one country), as well as trust planning.
It is best to do a consultation with an experienced Wills & Estates lawyer to look at your asset picture. If you have any questions, reach out to Laroux Peoples directly at email@example.com.
Amee Sandhu has been a business lawyer in Ontario for 20 years. She created Lex Integra Professional Corporation in 2019 and focuses exclusively on business law and corporate ethics.
In her current practice Amee advises clients on commercial, corporate, integrity, anti-corruption, ethics and compliance, and supply chain risks.
Understand your risks. Perform with Integrity.
The purpose and contents of this blog is to provide information only, and it does not constitute legal advice. Reading this blog does not create a solicitor-client relationship between the reader and Amee Sandhu or Lex Integra. It is recommended to engage (hire) a lawyer if you require or are interested in legal advice.
Connect with Amee