Multiple Wills – Hull on Estate and Succession Planning Podcast #81
Listen to "Multiple Wills"
This week on Hull on Estate and Succession Planning, Ian and Suzana continue their discussion about tax plan wills and issues surrounding multiple wills.
Multiple Wills – Hull on Estate and Succession Planning Podcast #81
Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #81 of our podcast on Tuesday, October 9th, 2007.
Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by
Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.
Ian Hull: Hi Suzana.
Suzana Popovic-Montag: Hi there Ian, how are you today?
Ian Hull: I’m just great, thank you.
Suzana Popovic-Montag: That’s good. I apologize for my raspy voice. I’m coming down with a little bit of a cold and after listening to your last podcast solo, I’m quite afraid of losing my job here. So I thought, bad voice or not, I got to show up today.
Ian Hull: No, we couldn’t do it as a solo event, because it’s a lot more fun to do it as a team, notwithstanding your ill health.
Suzana Popovic-Montag: Well, I think you did a great job, Ian. And you introduced our new topic and that was just great to be able to move on to something different now.
Ian Hull: Thanks so much. Well, I didn’t enjoy it because it’s not the same without being able to have a little banter back and forth. And it reminds us, we just, well this podcast will launch into the system, we’ll have just finished our Breakfast series that we conduct. We do a Breakfast series three times a year, the firm Hull & Hull does it. And speaking about banter back and forth, it was a good session, some really worthwhile topics were covered. We actually touched on some of the issues that I spoke about at the podcast last week, so that was kind of fun in terms of getting other perspectives. But I implore you, if you’re interested, or encourage you…implore is probably too strong a word…encourage you to look at the web page, because what we typically do is we webcast these as well. So you can get a look at it currently, if you want. But we also eventually, once we get ourselves organized, we’ll put the video of what we did last Friday on the web, so you can feel free to look and listen as you see fit.
Suzana Popovic-Montag: And our website, just for those who are interested, is
Ian Hull: Terrific. Well, let’s stay focused on what we’re trying to do is, you know, I mean, as I said in my last podcast, we’re talking about some of the concepts that Lindsay Histrop so eloquently presented to us at a conference we were recently at. And we’re trying to sort of expand on some of those because we have a little more time than Lindsay did. And I tried to…the sense that I got from Lindsay’s talk was sort of there are ways to tax plan a Will, that we can’t forget that part of it. And we’ve spent a lot of time talking about the other half. And we’re now coming back to what is the grounded part of it, the more sort of the meat-and-potatoes part of Will planning.
And so why don’t we continue on with that approach.
Suzana Popovic-Montag: Okay Ian, and just to sort of recap, I think we basically saw three points to the idea of a tax planned Will in terms of objectives. And the first being, of course, the, you know, the one that traditionally everyone uses as an excuse to plan a Will, and that is the avoidance of probate taxes, which here in Ontario is called the Ontario Estate Administration Tax. And it’s approximately 1.5% of the asset value that you have passing under probate.
Ian Hull: And in the second part of what we obviously need to turn to when we’re talking about planning Wills and estate planning and considering the overlay of the tax issues in terms of the concepts, is really just talking about avoidance and deferral and what we can do in that regard, talking about a little bit of the capital gains taxes, and so forth.
Suzana Popovic-Montag: And then in terms of the third objective there is, of course, you know, avoiding US estate tax on US property and planning for a US citizen as well.
Ian Hull: Alright, so coming back to the last topic. I finished off talking about some joint ownership issues again with the concepts of the tax implications. But let’s talk about what is certainly in most jurisdictions now a fairly fundamental estate planning step that is tax driven.
Suzana Popovic-Montag: And that, I guess you’re referring to, Ian, is the use of separate Wills, so more than one Will to plan for someone’s estate.
Ian Hull: Absolutely. And in Ontario, we sort of got this introduced to us by legislation. It was back, I guess, some years ago now, the Granovsky decision that opened the door up to what we call, here in Ontario, multiple Wills. And it’s a common estate planning phenomenon. And it’s even used in some respects in the US for certain trusts planning issues. But the concept is is that you create more than one Will. And it seems intuitively at the outset something that isn’t natural. And we think, well wait a minute, how can you have more than one Will? There’s the traditional approach before Granovsky and before we got into this was that many people who had US assets did a separate Will for the US assets. We’re going to talk about that in some future podcasts when we deal with the US issues.
But this is very different. This is using in your current location, your jurisdiction where you live and where you typically own most of your assets, this is using an estate planning technique that is fundamentally tax driven, that allows us to create more than one Will.
Suzana Popovic-Montag: And the idea really is to have each Will deal with separate assets. So it’s not like you’re speaking about one form of asset in two different Wills. It’s just dividing your assets into two different Wills so that one Will is traditionally one that you would probate, so you would seek Court approval of that Will, pay the requisite estate administration tax or whatever probate fees are associated with it, and then you could administer that portion of your estate. The other portion would be dealt with in a separate Will that doesn’t need probate. And so you can still provide for how you’d like your assets to be distributed, but you don’t have to pay tax on those assets and you don’t have to seek probate of that Will.
Ian Hull: That’s right. And it’s the probate tax on the assets of the separated Will that can be so fundamental in terms of the tax avoidance. And it’s entirely legitimate tax avoidance. But, so Suzana, let me understand. We’ve got sort of the traditional Will that we’re going to put some assets in and then we’ll call the secondary Will the Will where we’re going to put other assets in. What are the assets we’ll want to put in to the traditional primary Will, so to speak?
Suzana Popovic-Montag: Well they are usually Ian, the assets that the authorities who are holding, or have some form of control over those assets, need proof of the fact that the individual who wants to bring them or liquidate them or bring them into the estate has authority to deal with those assets. So, for instance, we know that, you know, large bank accounts, typically the banks will not just pay over money when you show them a Will that names you as an executor. They want Court approval or Court proof of the fact that that is the Last Will and Testament, so that you are the person with authority to liquidate that investment. And then they’ll pay that money over. And it’s because of the fact that there are certain assets that do require some form of proof, or they require that Certificate that we have to actually obtain probate of those assets. Other assets, which can…
Ian Hull: Sorry, before we go to the other assets, I just want to make sure I understand though. Because, so in this primary Will, we’ve got, like you say, this investment assets and so forth. And when you say the Court proof, I guess we’re talking about we’ll get probate and that means either the common form, which is just the over-the-counter probate with the proper application or the more complex solemn form, which is a Court sort of generated process, which we don’t really need to worry about the difference there, just that it’s probate.
Suzana Popovic-Montag: Absolutely. And the point there really is, Ian, you don’t need to do this for every asset. And a Will speaks from death. In a Will, if it appoints an executor, it does really vest that individual with authority to act. But sometimes people will need that one extra step, like you said, proof in common form, proof in solemn form, to actually prove that that individual has authority.
Ian Hull: Okay, and then like you say, it’s these third party entities like the banks that say, you know what, we’re not going to just trust that piece of paper, we want you to get it sort of stamped by the Court that that is indeed the Last Will of the deceased that generates it. Now, so we’ve got, let me just think through this. So we’ve got the banks obviously who will typically, and my experience is, anything over $5,000 they’re going to want it. The investment companies are going to want it as well. And in many jurisdictions, real estate as well.
Suzana Popovic-Montag: That’s right, yeah, because and you can sort of understand that it’s one of the biggest assets normally in someone’s estate and the individuals who are purchasing that from the estate trustee want to make sure that that individual does have the authority to deal with that asset. And, of course, they do but, you know, it’s that little extra comfort of a Court stamp or a Court stamp of approval on it.
Ian Hull: So these third parties then don’t get sued for sending out assets to the wrong person.
Suzana Popovic-Montag: That’s right.
Ian Hull: Alright. So those are sort of the main assets that would be, I’m sure there are other assets, but for the time being, let’s sort of move now to this secondary Will. And why would we have a secondary Will, what kind of assets would go into that?
Suzana Popovic-Montag: Well, traditionally we see people put private company shares in that separate Will. And the reason for that is because that again is normally one of the larger aspects of an estate in terms of the value. And so to be able to avoid probate fees on such a valuable investment or company share worth, it is a really good way to sort of deal with that asset.
Ian Hull: So we have these private companies and when you say private companies, of course, we’re talking about a situation where someone might have an investment portfolio that they put in a Holdco. They separate it from themselves and put it into a company for, you know, creditor protection, for other tax reasons. So, say there is a portfolio of $1,000,000 and you’re running it through a local investment dealer and it’s in Holdco, Xco is holding the assets. Then those assets would, in the old days, normally fall into the primary Will and they would be subject to probate tax. Now, we are able to, what you’re saying is we’re able to separate it. And we put the Holdco assets and we refer to it specifically in the secondary Will and it’s important, not that we want to get into the drafting that it’s important how we describe the preambles on the two Wills and so on, there’s some technical issues. But what you’re saying is is that we can put those in that secondary Will and then literally transfer those assets to the beneficiaries under that Will without probate and all you have to do is create the necessary internal documents through the director’s resolutions and so forth, to pass the ownership over. And typically the directors are all closely related or know each other and so there’s a comfort there. The directors know that indeed that is the Last Will and we’re not dealing with some mystery Will here. So they don’t need that extra Court stamp.
Suzana Popovic-Montag: That’s right Ian, absolutely. And the key really is that it’s private company shares. So if you hold stocks of, you know, a publicly traded company, of course that’s something that’s going to go back into the primary Will. So it’s just important to keep that in mind. And I’ve seen certainly, in addition to just those private company shares, people also will put, you know, their art or their antiques or other personalty in this secondary Will as well.
Ian Hull: And so, just so it will be clear though, in Holdco, say we’ve got Holdco created. You can actually pass the shares, the 100 shares of Holdco to your kids, for example. Now that Holdco can hold private company and public company shares.
Suzana Popovic-Montag: Absolutely.
Ian Hull: You could have, you know, Bell Canada in Holdco. And it’s a great way again because Bell Canada doesn’t care. All they care is is that Holdco still owns the shares and so there’s not the need for that extra layer of probate fees.
Suzana Popovic-Montag: That’s right Ian.
Ian Hull: Alright, terrific. So I think that covers us off on that issue. And it’s an important issue. Not necessarily one that comes to mind in every case but if you’ve got a situation where you’ve got sufficient assets to consider it, that secondary Will is important from a tax avoidance standpoint.
Suzana Popovic-Montag: That’s for sure. Well thank you very much Ian, I look forward to our next podcast.
Ian Hull: Thanks Suzana.
You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.
Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.