When it comes to sophisticated estate planning, having a legal will may not be enough for Ontarians.
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In the past five years, Jim Kibble of Ontario Estate Consulting Solutions Inc. has helped create more than 500 estate plans and is a strong advocate for the creation of two wills per person – one to cover assets that require probate and the other to cover assets that can be exempt from Ontario’s probate tax.
Why it matters: Having two wills can be helpful because the need to pay probate tax on the contents of one of the wills is eliminated and estate administration is more efficient.
For anyone who has been an executor or had a role in managing an estate, the probate process is likely all too familiar. The term probate means ‘to prove.’ In Ontario, a probate tax is charged to issue a probate certificate to the approved executor. Executors can only begin the estate disposal process once the certificate has been granted.
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Many banks or other financial institutions will not release financial assets to the executor until the probate certificate is available. All estate assets are subject to probate if there is only a single will per person.
The solution is to create two wills, allowing certain assets that are exempt from probate tax to be isolated in a secondary will.
Ontario has the second highest probate fees in Canada, second only to Nova Scotia. In Ontario, probate is 1.5 per cent of the value of probate-exposed estate assets with an exemption on the first $50,000 of estate assets.
Saving taxes and taxing headaches
According to Kibble, more than half of Ontarians don’t have a legal will, 31 per cent have a single will that is reasonably up to date, 15 per cent have a single will that is known to be out of date and only about three per cent have two current wills per person, which is the ideal situation.
Why should Ontarians have two wills per person? A primary and secondary will (first and second) provides an opportunity to isolate certain qualified assets that need not be subject to probate tax into a second will.
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In addition to eliminating the need to pay probate tax on the contents of the second will, the burden placed on executors is reduced and estate administration can be faster and more efficient. A second will eliminates the need to inventory and appraise many assets for probate purposes and saves appraisal costs.
“Both wills have the same executors and beneficiaries and are treated as one estate for income tax purposes, but the benefits of having a second will can make the world of difference when it comes to managing the estate,” says Kibble.
He helps people design estate plans as the first step in a two-part process, the second step being legal review and document drafting by a qualified estate lawyer.
Assets eligible for probate exemption in a second will could include any Ontario real estate that qualifies for a “first dealings exemption,” including Ontario real estate (farms, vacant land, cottages, homes, condos and rental properties) continuously owned since before 2003. Something to keep in mind, he said, is that specific eligibility requires verification.
Other eligible items include farms and farm assets in a farm corporation regardless of purchase date. Add to that shares of any other private corporation and all corporation assets, partnership business interests, vehicles, watercraft and farm equipment owned personally, personal effects in any residence or cottage property and private loans receivable, among other items.
Kibble recommends listing these exempt assets within a secondary will to avoid probate tax and to speed up the estate process.
Practical planning reminders
“Having no will is a disaster, having one will is better than none, and having two wills in Ontario is better than having only one will in Ontario,” says Kibble. “After all, who would want to be an executor of an estate with only one will if they have to inventory and appraise every single item in the estate?”
Kibble also advises Ontarians on managing family relationships by carefully selecting estate executors. “Just because they are your kids doesn’t make them the right person for an executor job,” he says.
“Choose people who have the right skill set and always consider adding a professional, like a trust company, as an executor to tap into their experience and non-biased approach. And having a trust company as the executor of last resort behind other appointees is also very important.”
Making the time to create a thorough and well-planned will is just the start. Kibble also advises Ontarians, especially farmers, to review their will every two years to ensure the details are current. New wills or updates should be drafted any time a person, family or farm business experiences a significant change in circumstances, like health status, a marriage or sale of the farm. He also notes changes in relationships also warrant a review of the will.
“Estate planning and wills are complicated, but there are plenty of options to make them work for your situation,” says Kibble. “Seeking the right legal and professional advice is the best place to start.”