Avoiding probate fees on private company shares

Many businesses are owned through privately held companies. Yet people who own shares in those companies often overlook an estate planning opportunity that can achieve significant savings for their estates. That opportunity is the use of multiple Wills to reduce probate fees.

Probate fees

Probate fees are paid when an individual dies and an application is made to the Court to probate his or her Will. A grant of probate has the effect of confirming that the Will is valid and that the executor appointed by it has authority to deal with the assets of the deceased. As a practical matter, it is often impossible for an executor to deal with estate assets without a probated Will, particularly if those assets have significant value. Also, some assets, such as land, cannot legally be transferred after an owner’s death without a grant of probate.

Before issuing a grant of probate, the Court requires that a fee be paid based on the value of the assets passing to the executor under the Will. Ontario and British Columbia have the highest probate fee rates in Canada. In Ontario, probate fees are calculated at a rate of approximately 1.5% of the value of all assets in Ontario. In BC, probate fees are calculated at a rate of approximately 1.4% of the value of all assets in BC and, if the deceased was ordinarily resident in British Columbia immediately before death, also on the value of intangible personal property (such as bank account funds, stocks and other securities) wherever located. In both provinces, there is no maximum cap and no deduction for debt owed by the deceased, other than debt secured by a charge on one or more of the deceased’s assets, such as a mortgage on real property.

By comparison, the maximum probate fee payable under Alberta law is C$400.

Multiple Wills

The use of multiple Wills to avoid probate fees is an accepted estate planning strategy recognized by the Courts in Ontario and British Columbia.

Where the multiple Will approach is used, individuals typically put in place one Will that governs assets that can be dealt with without a grant of probate — usually private company shares and unsecured loans, and a second general Will that deals with all other assets owned by the individual. On his or her death, only the second Will is probated and probate fees are paid only on the value of the assets passing under it.

The savings for some estates can be significant. For example, if the value of private company shares is $10 million, the probate fee reduction in Ontario would be approximately C$150,000.

Traps to avoid

As with most estate planning strategies, there are complexities to address and pitfalls to avoid when using multiple Wills. For example, in British Columbia, because of the wording of the applicable statutory provisions, the executors appointed by each of the Wills should be different, with no overlap. For some people, that presents a problem because they have a short list of people they trust to play this role and because they want consistency in the administration of their assets. However, there are ways to address this concern that can be discussed.

Also, a Will normally includes a clause revoking all previous Wills. That kind of clause must be drafted carefully to ensure that multiple Wills do not inadvertently revoke one another.

Other clauses must also be drafted with care so that, for example, intended assets and beneficiaries bear the burden of any debts and taxes, and legacies are fully funded, but not duplicated.

Conclusion

Given the potential savings, using multiple Wills to minimize probate fees in provinces such as Ontario and British Columbia is an option well worth considering. If you would like further information about this estate planning strategy, please contact any of the lawyers in our private wealth, trusts and estates group.