In the last edition of Family Matters in Milton, I discussed the scenario of defeating the probate tax of a jointly held asset, and particularly, a bank account jointly held by a parent and child. To review, a joint account held by spouses passes to the surviving spouse by right of survivorship when the first spouse dies. With survivorship occurring, no probate tax is assessed on the bank account. However, if the bank account is held jointly by a parent-child and the parent dies, the Supreme Court of Canada held that the child is deemed to be a trustee to the account and its contents because the parent’s intention of adding the child to the account was for management purposes only and not ownership rights by survivorship. Therefore, a trust results with the contents of the trust falling into the parent’s estate which is probated. The use of multiple wills is a strategy to avoid the probate tax on jointly held assets.
Multiple wills arose in the late 1990s following the case of Granovsky. Granovsky, a wealthy businessman in Toronto, had assets worth approximately $28 million dollars, of which his lawyers classified $3 million as public and the remainder as private. His private assets were primarily shares in family held private corporations, not registered on a public stock exchange. Granovsky knew that his estate was exposed to a large probate tax so he instructed his lawyers to find a solution to minimize the probate tax as much as possible. His lawyers discovered that in Ontario, only a primary will is submitted for probate, whereas subsequent concurrent or multiple wills are not. Therefore, the assets captured by the multiple will, and thus their wealth, are not probatable.
Granovsky’s lawyers drafted multiple wills with the private shares of his corporations described in his secondary will, shielding a large portion of his estate from probate tax. Granovsky died and his estate was eventually probated, with only his primary will being submitted to the estates court with the probate tax. His secondary will and the assets it described were not submitted for probate and were shielded from probate tax, saving his estate a substantial amount of money. The Attorney General of Ontario challenged the probate. Granovsky’s estate won at trial and at the Court of Appeal of Ontario. Now the multiple will strategy is good law in Ontario and is relied upon to shield private assets from probate tax.
In the case of a jointly held asset of a parent-child, such like a joint bank account, the case of Pecore stated that the child is a trustee to the joint asset, but doesn’t own the wealth of the asset. As a trust, the wealth remains in the hands of the estate and, therefore, is probated. However, because a trust is a private asset, the wealth of a joint account held between parent-child can be shielded in a multiple will.
When parents are contemplating having their children on their bank accounts or any other jointly held asset, they must also do a multiple will and especially before any incapacity or death. If children are beneficiaries under the parent’s multiple will, they all receive the wealth of the joint asset as an inheritance under the multiple will. And again, no probate tax is paid to the government under this probate tax avoidance strategy.
In conclusion, when preparing your estate plan, seek advice from an expert wills lawyer who understands how assets can be classified as probatable or non-probatable so that the probate tax payable to the provincial government upon death can be reduced or eliminated. Multiple wills are one strategy to accomplish this goal. A lawyer with expertise in this area, as myself, can save your beneficiaries lots of money at the end of the day.
For more information about wills and estate planning, please contact Gary D. Indech at 905-636-8890 or 416-271-4908, or send him an email at [email protected]