Epiq Systems, Inc.
Corporate, Real Estate

Multiple wills could prove useful for some B.C. businesses

With probate now optional under British Columbia's new Wills Estates and Succession Act, businesses owners in the province have the ability to create multiple wills, grouping certain assets together that do not need to be probated — a tool that may save the estate thousands of dollars, Vancouver corporate lawyer Jonathan Reilly tells AdvocateDaily.com.

As Reilly, founder of English Bay Law Corporation, explains, probate is a process by which a court certifies that a will is genuine and can be relied upon by third parties. In B.C. the British Columbia Supreme Court now charges a fee of approximately 1.4 per cent of the value of all the assets covered by the will being probated.

“Probate protects executors and third parties from any subsequent claims that the probated will was, in fact, not the will that should have been probated,” he explains, noting that public land registries, banks, and brokerages manage their risk by always requiring probate before taking action on a will’s instructions.

While a person who accepts an unprobated will as genuine also accepts the risk of personal liability in the event that a contradictory will surfaces later, Reilly says the degree of risk may be lower in private companies where the deceased was the sole or majority shareholder, and the executor may consider the risk to be remote.

“In closely held companies, one or two persons may have developed a business that has significant value and of which there are only one or two directors, all of whom knew the deceased well and are confident that the instructions in the will are not controversial or likely to be challenged or invalidated.

“If there is no disagreement that the will is valid, no sign of a family dispute or wills variation application, the directors may consider the risk that there is a contradictory lost or missing will to be remote and they may be willing to give effect to those share transfers without probating the will,” says Reilly, whose firm practises real estate law. 

This may be a useful tool in a complex estate, he says, because of the approximately 1.4 per cent cost of probate.

“In a business that has grown over a lifetime, the dollar value of those fees can become substantial and a plan to avoid that percentage fee will be worthwhile.”

As the new Act makes probate optional, Reilly says it has become possible to group assets together in multiple wills so that not all assets need to be probated — with one will covering any registered assets such as land, public company shares, RRSP and brokerage-held assets, for example, and another covering private company shares and “non-controversial” assets.

Under this scenario, the first will would be probated and would pay probate tax only on the included assets. The lands and businesses held by corporations could be excluded from the probate and thus excluded from the probate taxes, he explains.

Reilly notes that a number of his firm’s clients who have significant value locked up in companies have shown interest in this strategy.

“For instance, suppose a company holds only one asset, a rental property that has a net value of $500,000. The probate tax on the value of that company would be approximately $7,000, not an extreme value, but still more than a mere token. But suppose the company holds a real estate portfolio valued at $15,000,000. The probate tax would rise to about $210,000 — an amount that could impact the cash flow of the business and require the sale of the asset itself, and the need to plan takes on a more compelling flavour,” he says.

At the same time, says Reilly, there are some practical issues to be aware of when using this type of approach.

“Where there is a family dispute, it may become necessary to probate the additional will in spite of the plan. If that happens, the probate would have to be paid after all, so if there is a family dispute at the time the will is drafted, additional planning may be required.”

Additionally, he says, if there are family secrets — secret businesses, accounts, mistresses or children — multiple wills may be made, but may also need to be kept confidential.

“A typical multiple will plan will disclose the existence of the additional wills, but in some circumstances, this is not advised and care must be taken to maintain secrets without invalidating any other wills,” says Reilly.

Practically speaking, says Reilly, on any will that is being probated, an executor must swear an affidavit that he or she has disclosed all the assets that have been transferred to them on behalf of the deceased.

“It is important, therefore, that the executor of one will not be executor on any other will for the same will-maker,” he says.

There are also certain situations where additional planning may be required, he says, such as if the estate is expected to have significant debts that will eat into its value, or in the case of a family with known or expected claims of unfairness concerning the treatment of the beneficiaries.

Also, he cautions, if the testator is a minority shareholder, there is a risk that the controlling directors may refuse to transfer shares to the beneficiaries without probate, due to an unwillingness to shoulder the risk that the will presented turns out not to be the genuine will.

Reilly warns that the ability of a spouse or child to make a claim under the wills variation provisions of the new Wills, Estates and Succession Act also never expires with an unprobated will.

A new will can also invalidate an old one if it is not properly drafted — if multiple wills are being used, particularly if one or more of the wills will be kept secret, careful drafting is required so that one will does not invalidate the others.

Similarly, he says if amendments are made to one will, it may also be necessary to amend any additional wills.

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