Sabrina Gismondi, Author at FREEDIN & ROWELL LLP https://www.freedinrowell.com Practicing outside of the box for over 40 years. Fri, 02 Feb 2024 18:57:21 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.10 https://www.freedinrowell.com/app/uploads/2021/05/cropped-Alicia Robertfreedin-favicon-32x32.png Sabrina Gismondi, Author at FREEDIN & ROWELL LLP https://www.freedinrowell.com 32 32 Your Will(s): Why and when should you have more than one https://www.freedinrowell.com/your-wills-why-and-when-should-you-have-more-than-one/ https://www.freedinrowell.com/your-wills-why-and-when-should-you-have-more-than-one/#respond Tue, 23 May 2023 14:17:35 +0000 https://FREEDIN & ROWELL.humancode.ca/?p=4149 In Ontario, it is possible to have not one, but two (or more) wills. Having more than one will is a common estate planning strategy to try and save “probate tax”. What is probate tax, how much is it, and when is probate required? Probate tax, formally known as Estate Administration Tax, is a provincial…

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In Ontario, it is possible to have not one, but two (or more) wills. Having more than one will is a common estate planning strategy to try and save “probate tax”.

What is probate tax, how much is it, and when is probate required?

Probate tax, formally known as Estate Administration Tax, is a provincial tax that is payable to the Ontario government when an executor submits a will to Court to be validated; a process commonly referred to as “probate”. If probate of a will is required, the probate tax payable is about 1.5% of the total value of assets that pass under the will submitted to Court.

Probate is generally required to satisfy financial instructions, the land registrar, or other third parties that the executor has the authority to act on behalf of the estate.

Let’s take an example: John dies with an estate worth $5 million. He has one will. His estate is made up of a home that he owns in his sole name worth $2 million, private company shares in a family business worth $1 million, and solely-owned bank accounts/investments worth $2 million. The financial institutions where John’s bank accounts/investments are held require probate of his will in order for his executor to deal with the funds on deposit. Probate is also required for John’s executor to deal with his home. John’s executor submits John’s will for probate and John’s estate pays $74,250.00 in probate tax (about 1.5% of $5 million, with the first $50,000.00 being non-taxable).

In John’s case, probate tax was calculated on $5 million, being the total value of his estate. Even though probate was not required for John’s executor to deal with his private company shares, because the other assets in the estate needed probate, and because probate tax is payable on the total value of the estate, the value of the shares were included in the probate tax calculation. This is because probate tax is paid on the value of all of that assets that are governed by the will that is submitted to the Court for probate.

How could two wills have reduced the probate tax in John’s estate? With two wills, John could have allocated the assets that would have likely required probate, namely the home and bank accounts/investments, to one will, and the assets that would have not likely required probate, namely the private company shares, to a second will. John’s executor could have submitted only the first will to probate, and probate tax would have been paid only on the assets that were governed by that will. In other words, if the private company shares were allocated to a second will and the second will was not probated, John’s estate could have saved the probate tax on the value of the private company shares. In John’s case, with private company shares worth $1 million on death, his estate could have saved about $15,000.00 in probate tax.   

The strategy of having more than one will is often used by individuals who own closely-held private company shares, but similar considerations apply to other classes of assets that may not require probate, such as some personal effects significant value, certain loans, assets held in trust, or real property that falls under certain exemptions. An estate planning lawyer can help to navigate what assets may fall into this category.

While the law in Ontario currently permits the use of multiple wills, and while it is very popular strategy, especially among business owners of closely-held private corporations and professionals (doctors, accountants, lawyers, who have professional corporations), there is no guarantee that this strategy will be effective on death. There could be reasons why both wills could end up in probate (for example, if the law changes to disallow such planning, or if the estate is involved in litigation, etc.). This strategy also tends to be best suited for business owners of closely-held private companies where the other shareholder are immediate family members. When the other shareholders are arms-length business partners, there is always a chance that the surviving shareholders may require probate of the second will so as not to take the risk of dealing with the deceased’s shareholder’s will without probate. An estate planning lawyer can canvass your particular situation to assess whether the multiple will strategy is right for you.

Despite its risks, multiple will planning remains a common strategy to save probate tax on death. While multiple-will plans can be more complex and relatively more expensive in terms of up-front legal fees, we have seen many instances where the strategy is very effective in reducing or even eliminating probate tax. Do you own shares in a closely-held private company or other assets that you think could benefit from having more than one will? If so, you should contact us to learn if the multiple will structure could benefit you. 

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Common Will Myths: Debunked https://www.freedinrowell.com/common-will-myths-debunked/ https://www.freedinrowell.com/common-will-myths-debunked/#respond Fri, 18 Nov 2022 15:34:14 +0000 https://FREEDIN & ROWELL.humancode.ca/?p=4000 November is “Make a Will Month” in Ontario. In the spirit of raising awareness for how essential it is to have a Will, I thought it would be helpful to debunk some common myths I often hear as an estate planning lawyer. By shedding a spotlight on these themes, I hope that you will be…

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November is “Make a Will Month” in Ontario. In the spirit of raising awareness for how essential it is to have a Will, I thought it would be helpful to debunk some common myths I often hear as an estate planning lawyer. By shedding a spotlight on these themes, I hope that you will be invigorated to take action to complete your estate plan.

1. “If I don’t make a Will, the government will get everything.”

This is not necessarily true. In Ontario, if an individual dies without a valid Will (called dying “intestate”), his or her estate will be distributed according to a government distribution scheme called the law of intestacy that is set out in Ontario’s Succession Law Reform Act (the “SLRA”). It is only in the scenario that someone dies without a legally married spouse, lineal descendants or relatives that the estate would “go to the government” i.e. becomes property of the Crown.

Simply put, if you die without a Will, it is not likely that the government will get your estate, but the law will determine how your estate is distributed. An important reason to make a Will is so that you have a say in who your estate goes to.  

2. “I don’t need a Will because I am married so everything will go to my spouse”.

The SLRA only provides for legally married spouses, not common-law spouses. This means that if you have a common-law spouse and die without a valid Will, he/she will inherit nothing under the SLRA. If you would like to benefit your common law spouse, you would need to do so in a Will.  

If you die without a valid Will and are legally married and have a child or children, your surviving (legally married) spouse would be entitled to what is called a “preferential share” of your estate, which is currently prescribed at $350,000, and anything over this amount is split among the surviving spouse and the children. What often comes as a surprise to parents is that, if a minor child inherits in this scenario, and if the amount is over $35,000, the surviving parent does not get to hold the child’s inheritance on his or her behalf – it is “paid into court” and paid out to the child when he/she turns 18 years old.

3. “My family is on good terms, they will sort everything out”.   

If you die without a valid Will, no one, not even your closest family, will  have the legal authority to administer your estate until someone makes an application to court to be appointed as your estate trustee (also known as an “executor”). One of the important things a Will does is appoint an estate trustee, who is responsible for administering the estate, which can save time and reduce complexity after you die.

It is not a given that your family dynamic will remain the same after you are gone. Not having an estate plan, or not having a good one, can lead to confusion and friction between even the closest of families. Making a plan is one of the best things you can do for your loved ones so as not to leave a mess at an already difficult time.

4. “My Will applies to all of my assets”.   

Your Will may not necessarily apply to all of your assets. How assets are owned and held on death determines how they pass. While there are always exceptions, generally assets held jointly as “joint tenants” as between spouses pass automatically to the surviving spouse when one spouse dies, by right of survivorship, outside of the estate. Similarly, proceeds of plans or policies, such as RRSP/RRIFs, TFSA, life insurance and segregated funds can pass outside the estate by beneficiary designation, if a beneficiary is named on the plan/policy and if that beneficiary survives. A good estate plan focuses not only on the Will but on the entire plan.

One point that individuals are often surprised to learn is that separation or divorce does not automatically override any existing beneficiary designations naming an ex-spouse. This means that if, at one point in time, you named your now former spouse as the beneficiary of your plans and policies, did not update the beneficiary designations, and you pass away, the ex-spouse could inherit the proceeds of the plans and policies because they are still the named beneficiary. A good estate planning lawyer will draw attention to these types of matters to avoid unexpected or undesirable outcomes.

5. “I don’t need a will because I already have a Living Will, and/or “In my Will I can appoint someone to make decisions for me if I lose capacity”.

There is often confusion around this point. A Last Will and Testament, Power of Attorney for Property, and Power of Attorney for Personal Care are three separate legal documents. A Will takes effect on death, while Power of Attorney documents do the opposite: they apply during life and are no longer effective on death.

A Will appoints an estate trustee, responsible for administering an estate on death. Power of Attorney documents appoint an attorney, responsible for decision-making during life. An attorney for property deals with decisions regarding financial affairs, while an attorney for personal care deals with decisions regarding health and well-being. The word “attorney” also sometimes causes confusion – the attorney is the person appointed as the decision-maker, not the person’s lawyer (and they do not have to be a lawyer).

Ontario law does not use the term “living will”, although sometimes people use this term to refer to written wishes regarding medical treatment and/or personal care. This is also known as an advance directive.

6. “Having a Will prepared by an estate planning lawyer is expensive”.

The expense is relative, as there are several great estate planning strategies and opportunities that could lead to tremendous savings in estate administration tax (i.e. probate tax), income tax and legal costs down the road, which could far outweigh the cost of working with an estate planning lawyer to design a tailored estate plan. A well-crafted estate plan could also reduce the prospect of a disputed estate, which could be eaten by legal cost, expense and delay that could have been avoided with a solid plan.      

Completing or updating your estate plan should not be a stressful or difficult experience. We encourage you to work on your estate-planning project today with one of the specialists in our Estate Succession Group.

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