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In 1992, the Ontario government tripled probate fees.  These are the fees that the government charges for putting its seal of approval on the will of a deceased person, thereby confirming the authority of the executors named in the will to administer the estate.  The fee, which was previously 0.5% of the gross value of the assets governed by the will, is now 1.5%.  An estate with $5 million of assets (regardless of debts) is therefore required to pay a fee of $75,000 to probate the will.  Although this grab by the provincial government was challenged and found to be unconstitutional as being an unauthorized tax rather than a fee, the government was given a grace period to retroactively remedy the problem, and it did so by passing the Estate Administration Tax Act, 1998.  For many estates, this tax is significant enough to warrant planning to avoid it. 

There are a number of ways the tax can be avoided, but with one notable exception, they involve changing the way property is held and, in effect, result in a disposition of assets during one's lifetime.  Often this is not a preferred strategy.  The notable exception, which is the topic of this memorandum, is the use of a multiple wills strategy.

Probate is not required as a matter of law.  However, as a practical matter most financial institutions, land registry offices, and other bodies, whose cooperation is needed in order to transfer title to assets, insist on probate because they believe it provides them with added protection.  If one has assets which do not require the cooperation of such organizations to effect a transfer, then one can avoid obtaining probate for those assets.  The most obvious example of this type of asset is a shareholding in a private company.  To transfer private company shares one only needs the cooperation of the director or directors of the company which, in a family situation, may well be a spouse, children, or friendly professionals who can be counted upon to implement the transfer in accordance with the terms of the will, without insisting on probate.

The complication, however, is that if probate is required for any of the deceased's assets, in order to obtain probate, all of the assets governed by the will (including those assets with respect to which it would not have been necessary to probate the will) must be valued and the tax paid accordingly. 

The solution is to have two wills -- one which deals with assets for which probate will likely be required (such as bank accounts, real estate and portfolio investments), and one which deals with assets for which probate will not be required (such as private company shares).  This makes drafting your will/wills a little more complicated and adds to the initial cost, but at 1½%, the savings for a reasonable-sized estate can be impressive. 

Of course, many wealthy individuals to whom this strategy might sound attractive may not be holding their assets in a family company and may not want to do so for tax or other reasons.  Fortunately, that does not mean that they are out of luck.  Anyone can incorporate a company and transfer assets of any description to it to be held as "bare trustee".  This means that although title to the assets is registered in the name of the company, all of the incidents of ownership still belong to the individual.  The company is only there to hold the assets as the individual's agent or nominee.  This gives rise to no income or capital gains tax consequences of any kind, and combined with a multiple will strategy, can virtually eliminate the probate tax.

If you are concerned about unnecessarily paying tax on death, ask us about the use of multiple wills and a corporate bare trustee.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.

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Peter E. Lockie
Toronto
416.216.4813
plockie@ogilvyrenault.com
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