Article
Multiple Wills in BC: More paper but less probate fees
Multiple Wills are not exclusive to BC, but as with most estate planning tools, the nuances are specific to each province. The primary purpose for using Multiple Wills is to allow certain assets to bypass the probate process, and thereby avoid probate fees and public disclosure on those assets. Most commonly, this strategy is used for private company shares and other, valuable interests in businesses, such as shareholder loans.
What’s so bad about Probate?
The Basic Concept
BC’s estate administration process is carved into 2 main phases:
Phase 1: Prior to a Grant of Probate (a “Grant”) being issued
At this stage, amongst other things, an inventory of your assets is disclosed to the Court together with the values of those assets as at the date of your passing. Upon receiving all such information and payment of probate fees, the Court issues a Grant.
Phase 2: After a Grant is issued
In the second stage, the estate is distributed to the beneficiaries. As part of this process, the beneficiaries (or alternatively, the Court) approve the executor’s management of the estate and its assets, including the distributions that will be made.
Throughout the process, there are ongoing tax obligations, which are outside the scope of this information sheet.
The probate process is largely governed by the Wills, Estates and Succession Act (“WESA”) and the BC Supreme Court Civil Rules. Both phases are conceptually innocuous—so why do people want to avoid it?
Common frustrations with the probate process include: the probate fees payable on the value of estate’s assets, the time delays, and the public disclosure of assets necessary to obtain the Grant.
Probate Fees
Probate fees are paid on the value of the estate assets disclosed to the Court in the course of the inventory under Phase 1.
Probate fees are currently calculated as approximately 1.4% of the gross value of the assets governed by your Will at death. In effect, the probate fee is $14,000 for every $1 million of assets governed by your Will.
Timing
On average, even a relatively simple BC Estate can take 2-3 years to fully make its way through both phases of the estate process until a final distribution of the estate has been completed.
A key component of this lengthy timeline is that under WESA, distributions to beneficiaries cannot generally be made out of the estate for a period of 210 days from the date the Grant is issued.
Disclosure of Assets and Values
The probate process is a public process. As part of an application to probate a Will, all assets governed by the Will must to be listed, valued, and filed with the Court. This disclosure statement is publicly available to anyone for a small fee.
Using A Single Will Vs. Multiple Wills
Single Will
A single Will is the traditional model. Under a single Will, if a Grant is required to transfer even one asset, then the executor must disclose (and therefore pay probate fees on) all of your assets that pass to that executor.
Why is a Grant required to transfer an asset? Third parties (most commonly, the BC Land Title Office and financial institutions in dealing with accounts in a person’s sole name that do not have a designated beneficiary) will accept an executor’s authority to handle the assets of the estate if, and only if, a Grant is obtained.
An example, let’s assume you own:
- your home worth $1.5M, (which the Land Title Office will require a Grant to transfer),
- shares in your BC company worth $2M (which do not inherently require a Grant of Probate to transfer), and
- your company owes you $500,000 as a shareholder loan (which does not inherently require a Grant of Probate to transfer).
After your passing, your executor will need to sell your home or transfer it to your beneficiaries, and to do so must obtain a Grant. Probate fees on your home at 1.4% would be $21,000. However, your executor must pay probate fees on all these assets, not just your home, because they are governed by a single Will by the same executor, resulting in total probate fees of $56,000.
Multiple Wills
Shares in a private BC company can typically be transferred without a Grant, as there is no requirement under the corporate legislation in our province requiring the production of a Grant to change the ownership of the shares. The same can be said for money owing by such company, including loans by a shareholder, and dividends the company has declared but not yet paid.
By creating two separate wills, one dealing with assets requiring probate (the “General Will”), and a second dealing with the private company value (the “Limited Will”), then the executor of the Limited Will can bypass the probate process for the assets under that Limited Will and therefore its fees and delays. The assets governed by the Limited Will would not need to be disclosed to the Court and do not become publicly disclosable.
In the example above, having a second Limited Will would save $35,000 in probate fees.
Other assets can also be captured in a Limited Will in some circumstances, such as art collections, jewelry, and partnership or joint venture interests. The details of these items, including where they are stored and the terms of contracts, can be key in determining how well a Multiple Wills plan may work for such items.
Are Two Wills Worthwhile—Or Just More?
In deciding whether the use of Multiple Wills suits your circumstances, consider the following:
- Wills Variation Risk Avoid Multiple Wills
Under the WESA, BC allows any spouse or child of a deceased to start a court action to vary the distribution under a deceased’s Will(s) in their favour. The court action to assert this wills variation claim must be started within 180 days of the Grant being issued by the Court. If no Grant is issued in respect of a Will, the window to bring this claim remains open indefinitely, and in turn the executor under that Will has ongoing exposure to such claims.
The probate process savings of Multiple Will planning (of time and cost) is premised on the basis that the executor will not obtain a Grant for the Limited Will. Consequently, the window to challenge the distribution of the private company shares (or any other assets governed by your Limited Will) would never close.
If there is a risk that your child(ren) or spouse may seek to vary the terms of your Will(s), the executor may ultimately submit the Limited Will for probate, or the disgruntled spouse or child could seek to compel the executor to do so. In either event, no probate savings are achieved.
- Beware the Requirement of Different Executors
The Limited Will and General Will must have different executors in order for probate fee savings to be achieved. If there are not sufficient individuals whom you trust to act as executors under each Will, consider whether appointing professionals in the role of executor, such as a corporate trustee, may cost you more in professional fees than you’ll save in probate fees. If you were going to appoint a professional regardless, this is irrelevant.
- Increased Costs
It is more expensive to prepare two Wills than one, so consider whether the time and probate fees that will be saved are sufficient to offset the additional fees. If the value of the assets that can be dealt with under your Limited Will is likely to exceed $1 million at your passing, there is typically a cost benefit in this regard.
Conclusion
In the right circumstances, using Multiple Wills can achieve savings of time and fees relating to probate, and enhance privacy regarding your estate.
A comprehensive planning review can determine whether Multiple Wills may be appropriate for you. The review may also raise other strategic planning options to integrate in your Will(s), including mechanisms to protect inheritances from creditors and business risks, to preserve provincial benefits any of your beneficiaries may be receiving, and, if you have a beneficiary who is entitled to the federal disability tax credit, to structure trusts within your Will to be meet the criteria for Qualified Disability Trusts (QDTs), which enjoy preferential tax rates.
Our team of personal & tax planning advisory lawyers welcomes the opportunity to explore your individual circumstances, advise on any potential risks, and provide tailored estate planning options for you to consider.
Looking for Wills & Estate Planning support? Please contact Rose Shawlee or Catherine Kim of our estate planning group for assistance.
This information is current to July 15, 2024, and is not a substitute for legal or tax advice and should not be relied on as legal or tax advice.
