Unlock Probate Savings: How Duo Wills Can Protect Your Estate in Ontario
In some provinces probate fees can be a big cost to your estate. Did you know that Ontario’s probate fees are among the most expensive in Canada? Only Nova Scotia and British Columbia are comparable, while most other provinces charge significantly less or have flat, capped fees.
Creating an estate plan that includes probate reduction strategies is necessary in these more expensive provinces. One lesser known strategy is to create Duo Wills – also known as Dual Wills.
To learn about other probate avoidance strategies read our blog – “Probate by Design”.
This month’s article will highlight the value of duo wills and how this strategy applies in Ontario. We’ll cover:
Probate Basics
Let’s first review some probate basics.
What is Probate?
Probate is a court process to validate a will and ensure the proposed executor has the capacity and willingness to take on the role. Financial institutions usually require a court issued Certificate of Appointment before allowing your executor access to your accounts.
Probate Fees
Ontario’s probate fees—officially called the Estate Administration Tax (EAT)—are the highest in Canada. EAT is calculated at 1.5% on the value of the estate over $50,000 – which includes your principal residence.
When Probate Applies
Probate fees apply only to assets that flow through your estate. For example, assets with designated beneficiaries (other than the estate) on life insurance and registered assets, or assets under a trust, or jointly owned bank and investment accounts, all bypass the estate and are not subject to EAT.
Probate fees on assets valued at $1.5M is $21,750 in Ontario.
Although the above examples can help you avoid probate, there are some associated risks. Learn more in our blog “Joint Accounts with Adult Children is Risky Business”.
There is another strategy to reduce probate fees — the creation of duo wills. This article will discuss duo wills in Ontario only as the legal requirements differ in other applicable provinces.
The Mechanics of Duo Wills
In Ontario, duo wills are a legally-recognized approach to minimize probate fees. Two key areas to consider when setting up duo wills:
1. The Structure
Two separate and independent will documents are created:
- The Primary Will: includes only those assets that are likely to require probate before they can be distributed to your beneficiaries. This generally includes bank and investment accounts that do not have joint ownership, publicly traded shares, and real estate that does not qualify for special exemptions.
- The Secondary Will: includes assets that do not require probate prior to distribution to your beneficiaries. This typically includes shares in private corporations, valuable personal items (art, jewelry, collectibles), private loans, interests in family trusts, and assets qualifying for the First Dealings Exemption.
Only the Primary Will is submitted for probate and subject to the EAT. Assets in the Secondary Will are distributed without the requirement of probate.
2. Drafting the Wills
There are important considerations when drafting duo wills – some key guidelines:
- Clearly define the assets under each will to ensure there is no overlap or ambiguity.
- Sign both wills at the same time, while ensuring each document is separate.
- Choose your executor and beneficiaries – they can be the same or different in each will.
- Carefully word each will, being clear that they each operate independently.
- Make reference to the existence of the other will.
- Be sure that each will does not revoke the other.
Setting up duo wills can be a complex task and is best handled by an experienced estate lawyer. With professional guidance, you can be confident that your documents are properly structured, free of conflicts, and deliver the intended probate savings.
Duo Wills are usually considered part of the same estate for income tax purposes.
How Duo Wills Enhance Your Estate Plan
There are many reasons duo wills enhance your estate plan. Here are 4 notable ones:
1. Probate Fee Savings
We work hard to save, grow our investments and make smart choices to protect them. Dual wills create the opportunity to shelter assets that do not require probate in a secondary will, potentially saving tens or even hundreds of thousands of dollars in fees.
2. Privacy Benefits
Probated wills become part of the public domain. When you create a secondary will, your sensitive information is protected. Information about private company shares, private loans, or valuable collections are kept confidential under a secondary will that by-passes the public probate process.
3. Streamlined Asset Distribution
Assets in the secondary will can usually be distributed to beneficiaries faster and more efficiently. Because these assets do not require a potentially lengthy probate process (up to 8 months in the GTA), your family can access funds sooner and businesses can experience a smoother transition of control.
4. Advantages for Complex Estates
Dual wills have advantages if you have complex investment holdings. They allow you to customize investment strategies for different asset types, and can address unique family or business situations.
When you combine assets in your Will that do not require probate, with those that do, all assets become subject to probate.
Duo Wills And The First Dealings Exemption
You may not have heard about this Ontario exemption, but if you’ve owned your home for over 30 years and plan to live out your years in that home, you could potentially save probate fees on one of your largest assets – your principal residence.
Two important things to know about this exemption:
1. What Is The First Dealings Exemption?
The First Dealings Exemption applies to properties that were converted from Ontario’s old paper-based Land Registry system to the current Land Titles system. There are many requirements to qualify, but generally there can be no changes in ownership or significant dealings since the conversion.
If you have an estate where real estate is a significant asset – which is the case for many homes in Ontario, the First Dealings Exemption can mean significant probate fee savings. For example, a $1 million home qualifying for the exemption would save the estate close to $15,000 in probate fees.
2. Who Qualifies?
To qualify for this exemption:
- Your ownership of the property must have occurred before the mid-1990s – which is when the digital Land Titles system was introduced.
- The title must remain as “Land Titles Conversion Qualified”. If it’s been upgraded to “Fee Simple Absolute” or altered in any way, the exemption may not apply.
- There must be no changes in ownership since the Land Titles system was introduced.
- To determine your eligibility, a parcel register (available through ONLAND or a real estate lawyer) must be reviewed.
The First Dealings Exemption is a valuable estate planning tool. Bypassing probate can make the sale of your property by your estate faster and increase what your beneficiaries receive by reducing unnecessary delays and costs.
Consider reaching out to a real estate lawyer to determine if you qualify as the exemption rules are complex and interpretations can vary between land registry offices.
First Dealings Exemption applies only when eligible real estate is specified in a Secondary Will with other assets that don’t require probate.
Conclusion
Dual wills, including the First Dealings Exemption are powerful tools for you to minimize probate fees, protect privacy, and simplify your estate administration.
Although consulting with an experienced estate planning lawyer for dual wills and eligibility under the First Dealings Exemption may mean higher upfront costs, it’s worth the price compared to the benefits your beneficiaries will enjoy.
Did this article give you new information about the First Dealings Exemption and the value of Duo Wills?
We’d love to hear from you! Let us know if this article helped raise awareness about how to minimize probate fees by creating Duo Wills.
Financial Concierge™ offers Professional Executor and Power of Attorney services to assist with executor, attorney duties or help with managing daily financial activities. Learn more about Financial Concierge™ here.
Author: Janet Jackson, Contributor: Jill Chambers
DISCLAIMER: This blog is not intended to be legal or financial advice and should not be construed as anything other than for information purposes.
