By now, most of us are familiar with the importance of personal estate planning. After all, creating a will is the best way to ensure your loved ones can fulfill your wishes after you’re gone.
But what about your business? Like your personal assets, estate planning can be a useful tool for planning for your business after you pass away. In Ontario, that’s where corporate wills come in.
This article will introduce you to corporate wills and answer some frequently asked questions.
What is a Corporate Will?
A corporate will – sometimes referred to as a “secondary will” – is an estate planning document that directs how your business interest in a privately-held company will be handled after you pass away.
For example, if you are a business owner, you can create a corporate will that deals exclusively with your business interest while your “regular” will deal with your personal assets and other estate directions.
Am I Allowed to Have Multiple Wills?
You might be wondering: am I allowed to have multiple wills? Typically, a person should only create one will in Ontario, as it can create confusion or disputes regarding the validity of the documents after they pass away.
The Benefits of Corporate Wills for Ontario Business Owners
Corporate wills are an exception to the recommendation that will-makers should not prepare multiple wills. There are several benefits to creating a corporate will, as follows:
Avoiding Probate Fees on Corporate Interests
Perhaps the most common – and surprising – reason for creating a corporate will is that it helps you avoid paying probate fees on any corporate interests dealt with in the corporate will.
While this rule might sound surprising, it comes from the Ontario courts.
In Granovsky Estate v. Ontario, 1998 CanLII 14913 (ON SC), the will-maker created two wills: a primary will dealing with the majority of his assets and a secondary will dealing with his interests in four private companies. His executors applied for probate for the primary will but did not apply for probate for the secondary will. A dispute arose regarding whether probate fees needed to be paid on the assets for both wills.
The court determined that probate only had to be paid on the value of the assets in the primary will – therefore.
Following Granovsky, wills and estates lawyers in Ontario began using the personal/corporate will strategy to avoid probate fees on a business owner’s corporate interest.
To put this information in context, probate fees (known as estate administration tax) are based on the value of estate assets and calculated as follows:
- $0 for estate assets up to $50,000
- $15 per $1,000 above $50,000
So, as you can imagine, estate administration taxes can add up quickly for business owners. Using a corporate will allows will-makers to avoid the added estate administration tax on their corporate interests.
Protecting Your Privacy
Another common reason for creating a corporate will is the privacy it offers.
In many cases, a will needs to be “probated” before an executor can distribute estate assets. Probate is required if the will-maker owned real property or had assets held by a financial institute (such as funds in a bank account). Therefore, most estates in Ontario will require probate.
In a probate application, the executor (or, in some cases, another person), will apply to the court for probate. They will also need to serve the application on anyone who is affected by the will and file their application in court. In some cases, a court hearing may also be required.
In that sense, there can be many eyes on a probate application – and your will. For some business owners, this is not ideal. On the other hand, corporate wills do not need to be probated and will generally only be shared with others on a “need to know” basis.
For more information on the probate process, read our recent blog post on when estates go to probate in Ontario.
Saving Time
Using a corporate will can help your business easily carry on after you’re gone.
The probate process in Ontario can take time – assuming there are no issues with your application or disputes relating to the will, a probate application will typically take several weeks. With a corporate will, your corporate interests can be transferred quickly and easily without having to wait for probate, resulting in minimal disruption to the business.
What Happens If I Die Without a Corporate Will in Ontario?
Three scenarios can arise if you die without a corporate will in Ontario, depending on your circumstances.
If you have an existing will that deals with your corporate interests (e.g., specifying who you would like them to go to), they will be taken care of in the terms outlined. In this case, the value of your corporate interest will be subject to estate administration tax along with the rest of your estate.
Suppose you do not have a will when you pass away. In that case, your estate is considered “intestate” and will be dealt with in the terms outlined in Ontario’s Succession Law Reform Act, RSO 1990, c S.26. This means that, along with the rest of your assets, your corporate interests will be distributed under the following priority, depending on who survives the will-maker:
- Spouse
- Children
- Parents
- Brothers and sisters
- Nieces and nephews
- Other next of kin
- The Crown
Suppose you have an existing will that does not deal with your corporate interests but with other assets. In that case, your corporate interests may fall into the “residue” of your estate (e.g., the assets that are not explicitly given to someone or otherwise dealt with). In that case, your corporate interests will be treated as though you have an intestate estate and distributed under the Succession Law Reform Act distribution rules outlined above.
Final Thoughts on Corporate Wills in Ontario
Depending on your circumstances, a corporate will can be a great strategy for avoiding probate taxes, affording a certain level of privacy, and saving time. However, these documents aren’t for everyone – the best way to ensure your estate strategy works for you is to consult with an experienced wills and estates lawyer.
Contact the Estate Lawyers at Tierney Stauffer LLP for Comprehensive Estate Planning
Tierney Stauffer LLP’s client-focused team has the experience to assist clients across various practice areas. When it comes to planning your estate, protecting your wealth, and creating trusts, we will be your trusted advisor and guide.
Our estate lawyers work with clients in all aspects of estate planning and estate administration and will work to secure the results you need to move forward. Call us at 1-888-799-8057 or contact us online to set up a consultation with an experienced wills and estates lawyer.