Beware of traps with multiple wills
By Kate Wallace, AdvocateDaily.com Contributor
“A lawyer has to be cautious when preparing these documents because errors can be disastrous,” says Wahbi, partner with Fogler Rubinoff LLP, a full-service firm with offices in Toronto and Ottawa. “There’s no cost savings if you have to go to court for an interpretation or rectification of the wills."
The need for care includes the order of signing the two documents, she says.
“My first tip is: don’t revoke the other will by not paying attention to the revocation clause,” Wahbi says. “We want to be very careful about that by ensuring that the secondary will indicates, ‘I do not revoke my primary will by this secondary will. I intend to have two wills at the same time.’”
The practice of creating two wills, which in the past was used mostly by clients with assets in two jurisdictions, increased in 1994 after Ontario tripled its probate fees, which the province later legislated as an estates tax.
“People started to think about ways to avoid or reduce the probate fees, now known as Estate Administration Tax,” Wahbi says.
Probate fees are paid on the assets governed by a deceased will submitted to the court for probate. But certain assets don’t require a probated will to be administered, including personal effects such as furniture, household goods and jewelry, shares in a private company, shareholder loans and anything held in trust by the company, including real estate.
Unlike the primary will, Wahbi says the secondary will is not submitted to the court for probate and therefore no probate fees are payable on the value of assets governed by that will. Therefore, this will does not require an estate administration tax return to be filed and thus avoids the risk of an audit.
The threshold Wahbi uses for when it makes sense to draft a secondary will is if a client has assets that don’t require a probated will for their administration with a value of at least $1 million, she says.
It’s important the wills be signed in the proper order, first the primary will, then the secondary will, so they follow the way they are represented in the documents, Wahbi cautions.
“In fact, I now include the time and the date on each document — just so it’s very clear,” she says.
Wahbi advises care around the definition of what assets are covered by each will.
The first, “is the basket for all of the assets that need a probated will for their administration,” she says.
Of course, the exclusions from the first should be what is covered by the second.
“And sometimes things aren’t aligned properly,” she says. “I will compare the documents to make sure they mirror each other.”
There may be situations where some of the assets in the secondary will need to be probated, such as in the case of the estate selling a private company where the buyer demands probate. Another situation might be when a personal effect in the secondary will, such as a piece of art, is found to be valuable and the sale of the art requires a probated will to be effected. In that case, a mechanism is needed to have the asset revert to the primary will, so that the secondary will doesn’t have to be probated, Wahbi says.
“What I do in my secondary will is give the trustee the right to disclaim an asset so it reverts to the primary will and doesn’t taint the secondary will,” she says.
Another tricky situation arises when something from the secondary will is disclaimed, but the beneficiary of that asset is not the same as that in the primary will, Wahbi explains.
“Complicated, but it can be done,” she says. Avoid the mistake however of using the doctrine of incorporation by reference. Wahbi warns this requires careful attention.
“If you try to incorporate provisions from the secondary will in the primary will it will be ineffective because you can’t incorporate by reference something that doesn’t exist at that time and the secondary will doesn’t exist when the primary is signed because it is signed later in time,” she says.
Another complication relates to debts and liabilities that must be paid from the estate, Wahbi says.
“Which estate should it come from?” she says, noting this is especially complex when the trustees are different for each will, a practice she discourages.
“Ideally, you want to have the exact same beneficiaries and trustees, and only use the two will mechanism to save probate fees,” she says. “If it’s not done that way, the lawyer has to deal with who has what responsibility and how to resolve conflicts between two sets of executors administering one estate for many purposes as well as potential conflicts among beneficiaries.”
There’s also the issue of gifts. Some people make the mistake of putting a gift in both wills thereby mistakenly doubling the gift intended by the testator.
Wahbi approaches the primary will as the main will, the secondary as a supplement. She says it’s important to look at how they fit together and see if there are any gaps. “And ask yourself a number of ‘What if?’ questions.”
Wahbi says she will even draw up a point form list or a diagram to ensure nothing has been missed or duplicated.