When someone dies with a Will, the Executors of the Will generally apply for a “Certificate of Appointment of Estate Trustee With A Will”. So, you may be asking, how and why is there an option to obtain a “Certificate of Appointment of Estate Trustee With A Will Limited To The Assets Referred To In The Will”, and how is it different from the usual Certificate of Appointment?
The simple answer is Dual Wills.
Despite common belief, it is possible (if done correctly) for a person to have two valid Wills, which deal with different types of property, known as Dual Wills. In the correct circumstances, having Dual Wills may be very advantageous from a tax perspective.
As of the date of posting of this article, Ontario Estate Administration Tax is calculated, as follows, on Wills which include any assets subject to Estate Administration Tax:
- 0.5% on the first $50,000.00 (or $5.00 tax per $1,000.00 on the first $50,000.00), and
- 1.5% on the rest (or $15.00 per $1,000.00 on amounts above the first $50,000.00).
Some people believe that Estate Administration Tax is taxed on everything a person owns when they die; however, that is not the case. As such, knowing what items are exempt from Estate Administration Tax (and when) becomes very important.
The following are some of the items that are not included in the calculation of Ontario Estate Administration Tax:
- real estate outside Ontario;
- assets that are owned jointly with another person and transfer by survivorship;
- assets that transfer outside the estate (for example, RRSPs, RRIFs, TFSAs and life insurance policies where there is a living named beneficiary);
- Canada Pension Plan (CPP) death benefit; and
- in the correct circumstances, privately owned corporate shares.
One of the key components to ensuring that privately owned corporate shares are exempt (which could save thousands in Estate taxes), is the proper use of Dual Wills. The reason for this is that if these shares are contained in a Will that includes any assets which are subject to Estate Administration Tax, the shares will also be taxed; however, if these shares are contained in a Will that does not include any assets which are subject to Estate Administration Tax, the shares will not be taxed.
The way this works is the relevant shares will be excluded from the “General Will” and included in the secondary “Excluded Property Will”. The “General Will” will include all taxable assets and the “Excluded Property Will” will include only non-taxable assets. The Executors of the Estate will then obtain a “Certificate of Appointment of Estate Trustee With A Will Limited To The Assets Referred To In The Will” in relation to the General Will, and when the General Will (which does not include the shares) is used to calculate the Estate Administration Tax, the Estate will avoid taxation on the shares, potentially saving the Estate (and therefore the Estate’s beneficiaries) a significant amount of money.
The Bottom Line
Knowing the rules is the best way to save money. For this reason, it is highly recommended that everyone, especially those with shares in privately owned businesses, seek accounting and legal advice to ensure your Estate does not pay any more taxes than it needs to.
Disclaimer: While every effort has been made to ensure the accuracy of this article as of the date of posting, it is not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer. For specific technical or legal advice on the information provided and related topics, please contact Chinneck Law.