Is your wealth in private company investments? Consider multiple wills

The key reason to invest in a properly-drafted will is the assurance that your intended beneficiaries will be provided for to the best of your means upon your death. Implicit in this expectation is the desire for the bulk of your Estate to pass to your beneficiaries with minimal taxation.

If you hold wealth in the form of private company shares, the estate planning strategy of multiple wills can potentially save your Estate a considerable sum in estate administration tax. This is done by reducing the value of your Estate requiring administration, or probate, by separating out the assets which can pass to beneficiaries without the requirement of probate and distributing them in one will, while the assets requiring probate are disposed of in a second will.

For anyone unfamiliar with the term, “probating” a will is the process by which the executor, or  Estate Trustee, applies to the Court to obtain authority to act in the Estate’s name. The Estate Trustee applies for what is called a “Certificate of Appointment of Estate Trustee with a Will.” This is required when the value of the Estate assets is over a minimum amount – generally over $25,000.00 – or in cases where the Estate is comprised of certain specific types of assets such as publicly traded securities and Canada Savings Bonds. Many banks, stockbrokers and other financial institutions require this Certificate from the Court before they will permit the Estate Trustee deal with the assets of the Estate.

The cost associated with obtaining this Certificate is the estate administration tax referenced above and it is based upon the gross value of an Estate. The tax is calculated as follows: $5 per thousand on the first $50,000 value of an Estate and $15 per thousand on the balance of the Estate’s value. By way of example:

• A modest estate of $150,000 would attract estate administration tax of $1,750;
• A larger estate of $250,000 would attract estate administration tax of $3,250; and
• A million dollar estate would attract estate administration tax in the amount of $14,500.

Bear in mind that there is no upper limit on this tax amount.

Effective estate planning can help avoid the attraction of at least part of this tax through the reduction of the value of the Estate requiring administration.  Since shares in private companies can generally be transferred without obtaining probate, it is advantageous to dispose of such assets through a separate will which will not be submitted for probate. In the absence of such an additional will, the entire gross value of your Estate would be included for the purposes of obtaining probate; thereby resulting in payment of a needlessly higher estate administration tax.

A brief example will illustrate the value of multiple wills in this context.

• A testator has left an Estate valued at $2,000,000 comprised of $50,000 in cash in a bank account and $1,950,000 in private company shares. In order to give the Estate Trustee access to the $50,000 bank account, the bank will require that the Estate be administered by obtaining a Certificate from the Court. As such, estate administration tax in the amount of $29,500 would be payable on the full $2-million value of the Estate before the Court hands over the desired Certificate of Appointment of Estate Trustee with a Will.
• As noted, an effective tax minimization strategy in this case would have been the execution of two Wills by the testator; one will for the assets which must pass through the Court, i.e., the bank account, and one will for those assets which need not pass through the Court, i.e., the private company shares.
• In this example, an application for a Certificate of Appointment of Estate Trustee with a Will would then have been made for the will dealing only with the $50,000.00 bank account; resulting in estate administration tax of only $250.00 payable by the Estate, a saving of $29,250 in estate administration tax!

If you wish more information on this and other tax saving measures, contact one of the Estate planning professionals at Sotos LLP.