Canada: 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 on their death. That opportunity is the use of multiple wills to reduce probate fees. Until recently, there was a question as to whether multiple wills could be used in British Columbia for that purpose. But in March of 2014, the Wills, Estates and Succession Act ("WESA") came into effect making it clearer that the use of multiple wills is indeed a viable estate planning strategy in this province.

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 assets of an estate without a probated will, particularly if those assets have significant value. Also, some assets, such as land, generally 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. BC has the second highest probate rate in Canada calculated at approximately 1.4 per cent of the value of all assets in BC and, if the deceased was ordinarily resident in BC immediately before death, also on the value of intangible personal property (such as bank account funds, stocks and other securities) wherever located. 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, Ontario has the highest probate fee rate in Canada at approximately 1.5 per cent, whereas the maximum payable under Alberta law is C$400.

Multiple wills

The use of multiple wills to avoid probate fees has been accepted in some provinces, including Ontario, for many years. But until WESA came into effect, there was a question as to whether that approach worked in BC because of the particular wording of the previous governing legislation. That question seems to have been resolved and so, while the courts have not yet confirmed that this interpretation of the legislation is correct, it should now be possible to put in place one will that governs assets that can be dealt with without a grant of probate — typically private company shares and unsecured loans, and a second will that deals with all other assets. On the death of the individual, 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 C$10 million, the probate fee reduction would be C$140,000.

Traps to avoid

But as with most estate planning strategies, there are complexities to address and pitfalls to avoid when using multiple wills. For example, 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. Putting in place wills that appoint different executors may give rise to conflicting decisions. 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 intended assets and beneficiaries bear the burden of any debts, and so that legacies are fully funded, but not duplicated.

Conclusion

There are ways to address all of these concerns and so, given the potential savings, using multiple wills to minimize probate fees is an option well worth considering.


About Norton Rose Fulbright Canada LLP

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