When an individual dies, his or her will is typically probated through the Ontario Superior Court to enable the executors to effectively administer the estate. Ontario law levies a tax of 1.5% of the value of the estate when the will is probated. Unlike an income tax which is mandatory on taxable income earned in a year, the probate process, although pragmatically necessary for some assets, is not required by law for all assets.
To minimize the impact of probate taxes, it has been common and legally effective for individuals to divide their assets into two bundles - one composed of assets which do not legally or practically require a grant of probate, such as private company shares, and another composed of all other assets inclusive of bank and investment accounts which generally require a probated will for the executors to effectively deal with those assets. Each bundle would be governed by a separate will, but only that will dealing with those assets needing probate would be submitted to the Court for probate; and consequently, probate taxes would only be levied on the value of the assets governed by that will. At times more sophisticated planning is employed where the value of otherwise probateable assets is substantial.
Some wills contain provisions enabling the executors to exercise their discretion on the allocation of assets to each of the multiple wills to maximize flexibility and minimize the estate's exposure to probate taxes. It is that type of provision that was criticized by the Court in Re Milne1, leading to the declared invalidity of one of the wills. A subsequent decision with a similar fact situation was decided differently. Specifically in Re Panda2, the judge determined not to follow the decision in Re Milne,
Re Milne was recently appealed and, to great relief, the appeal was granted. The appeal Court3 took issue with the original Court's determination that a will is a trust and the incorrect analysis of whether the three certainties required to establish a trust were present. The appeal Court concluded that a will is not a trust, and even if it were, the wills in question would not be invalid, as the three certainties were met.
Although the use of multiple wills is still a valid probate tax planning technique, given the complexity related to ensuring they operate as intended and our constantly evolving laws, it is prudent to review your estate plan to ensure it achieves what is intended.
Footnotes
[1] Milne Estate (Re), 2018 ONSC 4171.
[2] Panda Estate (Re), 2018 ONSC 6734.
[3] Milne Estate (Re), 2019 ONSC 579.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.