By Raz Toor, Lawyer and Founder of Falcon Law PC
For an Ontario business owner, estate planning can become more complicated once a significant portion of personal wealth is tied up in private corporations.
A person may own shares in an operating company, holding company or family business while also owning a home, investment accounts, bank accounts and other personal assets.
In the right circumstances, using two coordinated wills — commonly called a primary will and secondary will — can allow certain assets to be administered without obtaining probate for those assets. One of the principal reasons for doing this is to reduce Ontario Estate Administration Tax.
I’m Raz Toor, the founder of Falcon Law PC. We advise business owners and families on wills, estate planning and the corporate issues that can arise when privately held businesses form part of an estate.
What Is a Secondary Will?
A secondary will is not a different type of will under Ontario legislation. It is part of a multiple-will estate plan.
Instead of one will governing every asset, the individual signs two carefully coordinated wills dealing with different categories of property.
The primary will generally governs assets for which the estate trustee is expected to require a Certificate of Appointment of Estate Trustee — what is commonly called probate.
The secondary will governs selected assets that may be capable of being administered without that court certificate.
For business owners, privately held corporate shares are often the main reason to consider this structure.
Why Does This Matter for Ontario Estate Administration Tax?
Ontario Estate Administration Tax is payable when an estate certificate is applied for and issued.
For applications made under the current rules, there is no Estate Administration Tax on the first $50,000 of estate value. Above $50,000, the tax is generally $15 for every $1,000, or part of $1,000, of estate value.
That means an estate requiring probate over several million dollars of assets can incur a meaningful amount of tax.
Ontario specifically recognizes the multiple-will situation for Estate Administration Tax purposes. Where the court issues a Certificate of Appointment limited to the assets governed by one will, only the assets covered by that will are included in the estate value for that certificate.
The planning opportunity is therefore relatively straightforward in concept: assets requiring probate can be placed under the primary will, while appropriate assets that can be dealt with without probate can be governed by the secondary will.
Example: A Business Owner With Private Company Shares
Suppose an Ontario business owner personally owns shares of a successful private corporation worth $3 million.
They also own a home, personal investment accounts and other assets.
If everything is governed by one will and that will must be probated, the value of the private-company shares may form part of the estate value on which Estate Administration Tax is calculated.
If the corporate shares can instead be properly administered under a secondary will without obtaining probate of that will, their value may be kept outside the estate value submitted with the primary probate application.
That can produce significant savings where the private business has substantial value.
But the important words are “if the shares can be administered without probate.” A secondary will does not magically make an asset non-probate property simply because the will says so.
Do Private Company Shares Require Probate?
Not necessarily.
Unlike publicly traded securities held through a financial institution, shares in a closely held private corporation may sometimes be transferred by the corporation based on the deceased shareholder’s will and other satisfactory documentation without requiring a court-issued estate certificate.
Whether that will work in practice depends on the corporation.
I would want to review the Articles, by-laws, shareholder agreement, securities register, share certificates and any restrictions applying to transfers on death.
We would also want to understand who the other shareholders and directors are and what the corporation will require before registering the estate or beneficiaries as shareholders.
For that reason, secondary-will planning for a business owner should involve a review of the corporate records rather than treating the shares as merely another line on an asset list.
A Secondary Will Is Particularly Relevant to Business Owners
A person with a conventional estate may have relatively few assets that benefit from a second will.
Business owners are different because private corporate assets can become both valuable and administratively complicated.
A secondary will may potentially govern shares in an operating company or holding company and, depending on the circumstances, certain other private assets that can be administered without probate.
The value of the strategy therefore tends to increase where a meaningful portion of the person’s net worth consists of privately held corporate interests.
For broader corporate planning during the owner’s lifetime, see our legal services for entrepreneurs and business owners.
A “Corporate Will” Is Still the Individual’s Will
The term “corporate will” is sometimes used to describe a secondary will focused primarily on private-company shares.
That terminology can be confusing.
The corporation itself is not making a will. The shareholder is making a personal will dealing with their ownership interest in the corporation.
The corporation continues to exist after the shareholder’s death. What needs to be addressed is who has authority over the deceased person’s shares, how those shares are dealt with under the estate plan, and whether any shareholder agreement or corporate restriction affects their transfer.
The Shareholder Agreement Can Be Just as Important as the Will
A will cannot be reviewed in isolation where the deceased owns shares subject to a shareholder agreement.
The agreement may contain provisions dealing specifically with death.
For example, it may provide that the deceased shareholder’s shares must be sold to the surviving shareholders or to the corporation. It may contain valuation provisions, life-insurance arrangements or restrictions preventing shares from simply passing to a beneficiary.
If the will says one thing while a binding shareholder agreement requires another, the estate can become substantially more difficult to administer.
For business owners, estate planning should therefore be coordinated with the corporation’s existing agreements and records.
Probate Planning Is Not the Same as Tax Planning
This distinction is important.
A secondary will can potentially reduce Estate Administration Tax, which is the Ontario tax associated with obtaining an estate certificate.
It does not eliminate the income-tax consequences that arise when someone dies.
For example, shares of a private corporation can create significant deemed-disposition and capital-gains issues on death. Depending on the circumstances, post-mortem tax planning may also be required to address corporate assets, retained earnings and potential double taxation.
Those issues should be coordinated with the person’s accountant or tax adviser.
The estate plan should not save probate tax while accidentally creating a much larger corporate or income-tax problem.
Does Every Business Owner Need Two Wills?
No.
If the value of the private-company shares is modest, the anticipated Estate Administration Tax savings may not justify the additional complexity of maintaining multiple wills.
A secondary will may also provide little benefit if the relevant institution, corporation or transaction will require probate regardless.
The analysis should therefore start with the assets themselves: what the person owns, how those assets are registered, their approximate value, and whether probate is likely to be required to administer them.
The Two Wills Must Be Carefully Coordinated
Multiple wills introduce drafting risks that do not arise in the same way with a single will.
Most importantly, one will must not accidentally revoke the other.
Standard wording stating that the testator revokes “all prior wills” can create an obvious problem if two wills are intended to operate simultaneously.
The wills also need to divide the assets clearly enough that the estate trustees can determine which will governs a particular asset.
Careful consideration should also be given to how debts, taxes, expenses, specific gifts and the residue of the estate are allocated between the two estates.
This is not an area where I would recommend preparing two generic wills and simply labelling one “Primary” and the other “Secondary.”
Can the Two Wills Have Different Estate Trustees?
Yes, they can.
In some cases, using different estate trustees can make sense.
A business owner may want someone familiar with the company to administer the private corporate interests while choosing another family member or trusted individual to administer the personal estate.
In other cases, having the same estate trustees under both wills is simpler.
The decision should reflect the actual assets and the capabilities of the people being appointed rather than being made solely for probate-planning purposes.
What Happens if the Secondary Will Eventually Needs Probate?
This possibility should be contemplated from the outset.
A secondary will is drafted on the expectation that its assets can be administered without obtaining probate. Circumstances can nevertheless change.
A third party may refuse to recognize the estate trustee’s authority without a court certificate, a dispute may arise, or an asset may prove more difficult to transfer than expected.
If probate of the secondary will ultimately becomes necessary, the assets governed by that will can then become relevant to the Estate Administration Tax calculation for that application.
The planning therefore reduces probate exposure where the structure works as intended; it does not guarantee that the secondary estate can never require court involvement.
What About Real Estate?
Ontario real estate often requires separate analysis.
Whether an estate trustee can deal with a property without probate depends on the title and circumstances. Some older properties can raise so-called “first dealings” issues under the land titles system, but that concept should not be confused with Estate Administration Tax planning.
Ontario currently makes clear that the first-dealings exemption does not itself remove the value of the property from the Estate Administration Tax calculation where that property forms part of the estate being probated.
A secondary will should therefore not be built on an assumption that personally owned Ontario real estate can automatically avoid probate.
Beneficiary Designations and Joint Ownership Are Separate Issues
Not every asset outside probate needs to be placed under a secondary will.
Life insurance and certain registered accounts may pass directly to a properly designated beneficiary. Property held jointly with a true right of survivorship may pass to the surviving owner, although joint ownership can create its own legal and evidentiary issues.
Those assets should be considered alongside the wills when developing the overall estate plan.
The goal is not to put as many assets as possible outside the primary will. The goal is to create a structure that actually works when the person dies.
Estate Planning for Business Owners Should Include the Corporation
When I look at a will for a business owner, I am interested not only in who receives the shares but also in what happens immediately after death.
Who can make decisions for the business? Is there another director? Are there other shareholders? Does a shareholder agreement govern death? Is there insurance funding a buyout? Does the deceased have a shareholder loan receivable? Is the intended beneficiary even permitted to own the shares?
Those questions can have a much greater practical impact on the family than the probate-tax calculation by itself.
A business worth several million dollars can lose value quickly if nobody has thought about who will control it during the estate administration.
Secondary Wills Should Be Part of a Broader Estate Plan
Multiple wills are one planning tool, not the entire plan.
A complete review may also involve powers of attorney, beneficiary designations, jointly held property, shareholder agreements, corporate succession, insurance and tax planning.
The documents should work together.
For example, a well-drafted secondary will is of limited help if an outdated shareholder agreement forces an unexpected share sale, or if nobody has authority to manage the business while the owner is incapable but still alive.
How Falcon Law PC Can Help
Falcon Law PC assists Ontario business owners, professionals and families with wills, estate planning and probate matters.
Where private corporations form part of the estate, we can review the corporate structure alongside the estate plan, including private-company shares, shareholder agreements and related corporate records, and determine whether a primary and secondary will structure is appropriate.
Where significant tax planning is involved, we can coordinate the legal structure with the client’s accountant or tax adviser.
You can learn more about our Ontario Wills, Estate Planning & Probate legal services.
Should You Have a Secondary Will?
For an Ontario business owner with valuable private-company shares, it is a question worth asking.
The answer depends less on overall wealth than on the types of assets you own and whether those assets will actually require probate.
If substantial private corporate interests can be administered without a court certificate, a properly drafted secondary will may reduce Estate Administration Tax while also allowing the corporate portion of the estate to be administered separately from the personal estate.
But the wills need to be coordinated with the corporation itself.
That is what turns a secondary will from a probate-tax idea into an estate plan that is actually capable of working after the business owner’s death.
This article is intended for general informational purposes only and does not constitute legal, tax, accounting or financial advice. The suitability of multiple wills depends on the individual’s assets, corporate structure, governing agreements and estate-planning objectives.