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TO REDUCE PROBATE TAX Possible Strategies

New probate rules came into effect on January 1, 2015. See my article in Issue 18 of CKSenior online for more information on these new regulations. A new Estate Information Return is required to be submitted to the Ministry, including a detailed inventory of the deceased’s assets for purposes of verifying the amount of Estate Administration Tax (or “probate tax”) payable upon issuance of a Certificate of Appointment (or “probate certificate”). Recall that probate tax is $15 per $1,000 on the value of the deceased’s assets exceeding $50,000.

There are certain strategies to limit the amount of probate tax that would otherwise be payable by an estate, and these methods are becoming more prevalent with the introduction of these new rules.

PRIVATE CORPORATIONS

If you own shares in a corporation that is not traded on a public stock exchange, a method for avoiding probate tax on the value of these shares (i.e. the value of the corporation) is to deal with them in a separate Will, sometimes referred to as a “Corporate Will” or “Secondary Will.” The purpose of this Secondary Will is to transfer the shares in the event of the death of a shareholder without the payment of probate tax.
This Secondary Will is executed in combination with a “General Will” or “Primary Will,” which is intended to deal with assets of the deceased which do require a probate certificate. A probate certificate will only be obtained for the Primary Will dealing with assets for which probate is necessary. The intention is that the assets within the Secondary Will are not probated.

It is important that you use the services of a lawyer experienced in drafting Primary and Secondary Wills, as special drafting is required to ensure that the Wills do not inadvertently revoke one another, and to clearly define the assets intended to be dealt with under each respective Will.

This is only an effective strategy if you feel that the Directors of the corporation, as well as the recipient or purchaser of the shares, will agree to complete the transfer or purchase of shares without a probate certificate from the Estate Trustee. For example, if a shareholder plans in her or his Secondary Will to gift her or his shares to a surviving spouse or child, it is likely that the surviving spouse or child will not require evidence of
a probate certificate before obtaining the shares.

REAL ESTATE

It is not as well known that in limited circumstances a similar strategy can be used to eliminate the necessity for probate on certain real estate. This method is only available where real estate has not been sold, transferred, or conveyed by deed since a certain critical date known as the “date of conversion to Land Titles.” A more detailed explanation is beyond the scope of this article, but a review of your real property title with an estate planning lawyer such as myself should quickly reveal whether or not this planning mechanism is available to you. Exploring this possibility will be of particular interest to owners of valuable farm land.

PERSONAL BELONGINGS

You may also choose to include personal belongings, such as your collections, automobiles, boats, or farm equipment, in a Secondary Will. Again, the idea is that these personal effects can be gifted or transferred to beneficiaries without the requirement of a probate certificate. It is common for Will drafting lawyers to include personal belongings as a “tag along” in Secondary Wills that are being drafted for a shareholder of a private corporation. However, even where a person does not own shares in a private corporation, but owns a valuable collection, farm machinery or classic cars for example, this method may be appropriate.

A common theme I hear from my clients preparing Wills is that they want things to go as smoothly as possible and without unnecessary cost or delay when they pass away. Utilizing a Primary and Secondary Will strategy is one method to achieve this goal.

Jason P. Mallory, H.B.A., J.D.

*The comments in this article are not meant as legal opinions and readers are cautioned not to act on information provided without seeking specific legal advice with respect to their particular situation.

kerr-wood-mallory-20-200x300[1]Jason P. Mallory
is a lawyer with Kerr Wood & Mallory in Blenheim and recipient of the Margaret E. Rintoul Award in Estate Planning

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