A Secondary Will can be a financial planning tool, some homeowners and business owners, mostly in Ontario and British Columbia, use to help reduce the amount of Estate Administration Tax (EAT) that needs to be paid after ones passing to ensure more of their assets end up with their survived family and friends.
With secondary wills, assets are transferred to the beneficiaries without the need for probate*. If your regular, or primary will, includes assets that may attract significant EAT, placing them in a secondary will could reduce, or eliminate, the EAT your estate would be required to pay. Not every estate will need to go through probate, and unfortunately this is never fully known until time of death.
Typically, assets which do not require probate that may be prepared under a secondary will include:
• Shares of privately held corporations, related shareholder’s loans and receivables
• Household goods and personal effects (minus items that may need verification of ownership)
• Assets over which the testator has a power of appointment
• Partnership interests and related loan and receivables
• Unsecured debts
Examples of when a secondary will would be needed
Married or Common-law Couple who own a business and a house
· Danielle and her partner Tracy own a family home and have some savings (TFSAs and RRSPs). They are also co-owners of an incorporated business, the shares of which were recently valued at $1.5 million dollars.
· If they each had a Primary Will only, then the shares of their corporation would become part of their probated estates.
· The EAT payable just on the shares alone would be $21, 750.
· This tax would be on top of (1) any capital gains taxes owing, (2) personal taxes owing; and estate taxes payment on the other assets in their estates (for example, their house, any other properties, jewelry, etc.).
· If Danielle and Tracy each had a Secondary Will, their combined estates would have saved that $21,750.
Older Torontonian with older house purchase
· Anita is in her 80s. She purchased her Toronto home in the 1960s. Her home was recently valued at $1.6 million; it’s her biggest asset. She also has some minor savings.
· Her Wills and Estates lawyer discovers that Anita’s property is a Land Title Conversion Qualified property that also qualifies for the First Dealings Exemption. As a result, it won’t require probate when she dies (meaning no estate tax will be due on the house), if she has a Secondary Will in place.
· On the other hand, if Anita only has a Primary Will and no Secondary Will, and dies still owning that property, the EAT payable for the home will be $24,000.
· Anita’s Wills & Estates lawyer would likely recommend: if Anita plans to remain in that home, to have a Secondary Will so that her estate can save $24, 000 in estate taxes.
Examples provided by Amee Sandhu
There are many specific elements that go into Estate planning. You will need an experienced Wills & Estate Lawyer who knows the questions to ask and direction to provide.
Call Carson Law to book your free 30-minute consultation
info@carsonlaw.ca
905.336.8940 x 1001
* The probate payment of the Estate Administration Tax in Ontario is the highest among the provinces and currently stands at approximately 1.5% of the value of the testator’s assets ad the date of death.
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