It is becoming increasingly common for lawyers to discuss or recommend to clients to have two wills prepared if the testator has a substantial investment in one or more private companies .
This plan involves having one will to govern the estate assets that require probate and a second will to govern those estate assets that do not require probate. The customary objective is to achieve a significant savings in Estate Administration Tax.
Usually the will that governs the assets requiring probate is called the “Primary Will” and is signed first, and the will that governs the assets that don’t require probate is called the “Secondary Will” and is signed immediately afterwards.
Assets that can usually be dealt with without the necessity of a formal grant of probate by the court include things like shares in a privately held corporation, partnership interests, beneficial interests in a trust, unsecured debts, and household goods and personal effects except for those that are specifically dealt with under the primary will.
Sometimes even real property can be transferred without probate. This usually includes lands where the title is still registered under the Registry Act, or on the first dealing with lands being converted from the Registry Act system to the Land Titles system.
If you are dealing with a specific parcel of land in the Secondary Will, you should consider having a fall back provision in the Primary will in case the property ultimately cannot be dealt with without probate.
Dual wills however should not necessarily be used automatically in every case where the testator has shares in a private company. There are a number of important considerations and potential problems in using dual wills.
It is important that they be signed in the proper order and that the revocation clause set out in each will be different and properly worded. Otherwise, one of them might inadvertently revoke the other.
If different estate trustees are appointed there could be some overlap or dispute about their respective responsibilities. You might want to be more specific about the division of responsibilities than you would in a case where you only have one will. For example, which estate trustees are going to be responsible for preparing and filing income tax returns? In the event of a conflict or dispute which trustees would have the ultimate decision-making authority?
If there will be a beneficiary designation in the will(s), for life insurance, RRSP,RRIF, TFSA etc, it is generally better to put these in the Primary will because if they are in the Secondary will and prove ineffective that could taint the Secondary will and could result in having to pay Estate Administration Tax on the whole secondary estate.
If there are different beneficiaries, and especially if there are different residual beneficiaries, you should consider carefully which Estate is to pay which debts and taxes on which properties and assets. This might include income tax on RRSP’s, RRIF’s and capital gains tax on taxable property.
Again if there are different beneficiaries and the possibility that there will not be enough in the estate, or the residue of the estate to satisfy all debts, taxes and legacies, consider setting out specifically who is to bear these charges and which legacies will be reduced in what order or by how much.
Lastly, we recommend that you avoid using a codicil(s) to amend dual wills. There is a risk of an unintended revocation because a codicil effectively republishes the will it refers to as of the date of the codicil. With modern will drafting technology it is generally simple enough and more prudent to prepare complete new dual wills.
Anyone with a substantial investment in a private company or other assets that might not require probate should consider making dual wills and should obtain sound legal advice before doing so.
It is important to understand the advantages of dual wills, but also to be aware of the special pitfalls and problems they can create. They are not necessarily appropriate in every case just because the testator has a private company.