MULTIPLE WILLS PROVIDE A WAY TO DODGE TAXES
B.C. official insists loophole is simply an estate planning mechanism
COVID-19, death, taxes and money laundering merged for me when discussing my own meagre estate in the face of the pandemic: My lawyer quipped I’d need only one will!
Who knew you could have a couple of wills, skip the taxes and obscure the transfer of ownership in assets in a province where money laundering has been front and centre in recent years?
Yet, it remains legal in B.C. to use multiple wills and avoid death duties — probate fees of 1.4 per cent over and above the first $25,000 on property and businesses.
This legitimate legerdemain was unexpectedly exposed three years ago during the transfer of ownership in a lucrative egg farm in Kelowna.
I figured they would have closed the loophole.
Tyler Hooper, a Justice Ministry public affairs officer, however, confirmed multiple wills remain legal and probate is not necessary for a will to be invoked.
The trick is that even though it is not probated, a will can be used to transfer shares and other valuable assets, avoiding considerable taxes.
“It is up to third parties whether they wish to accept an un-probated will or if they wish to require a grant of probate before they will transfer assets into the control of a personal representative,” Hooper said.
The loophole has its roots in two Ontario cases and an English decision involving two wills, one signed in the U.K. the other in America, from 1876!
The strategy is to sequester assets you want to protect and not have taxed in one will, while the remaining assets are placed in another to be probated and assessed.
This dodge surfaced in B.C. when Norman Frank Berkner, a widower, decided to transfer his eponymous Kelowna farming firm to his only heir, daughter Shelley Dorothea, by signing two wills in 2016.
The “primary will” covered assets that required probate to be transferred, while the second covered other assets including Berkner Egg Farms Ltd.
B.C. Supreme Court master, now Justice Steven Wilson approved the tax-avoidance mechanism in his 2017 decision.
He allowed Shelley to probate only the primary will without including the valuable farm assets in the second, which Wilson said did not need to be probated.
But how can the ownership of valuable shares held in a private company, clearly assets of an individual’s estate, be given to a new owner and probate fees avoided?
Wilson said it was not uncommon for people with assets in multiple jurisdictions to have multiple wills, but we’re talking about a single jurisdiction here — and the current 2009 Wills, Estates and Succession Act doesn’t help.
The two Ontario cases, each involving two wills — only one of which was to be probated — both cited the hoary English case known as “Astor, In the Goods of” as justification for the practice.
Astor — which supported a testator’s wish to deal with his American and English property in separate wills — remained
good law, Wilson said. That needs to be changed.
While property in different jurisdictions with different laws might justify more than one will, that’s not the issue — this is all about transactions and financial activity within this province.
In B.C., the Business Corporations Act allows a personal representative, such as an executor, to transfer the deceased’s shares in a privately held company — a grant of probate is not necessary; a declaration of transmission, an original share certificate and the will are sufficient authority.
Hooper insisted that multiple wills were simply an estate-planning mechanism.
“A trust is in some ways superior to the multiple-wills strategy, because unlike the multiple wills strategy, where the shares do form part of the estate and are vulnerable to a will variation application, trust assets are
transferred outside of the estate and therefore are both shielded from probate fees and protected from will variation applications,” he explained.
Trusts, however, are on the mandate of the money laundering inquiry because of the way they are used to mask beneficial ownership, along with shell companies. Add wills.
Ontario has moved to a probate-review practice aimed at meeting the concern of the Canadian Revenue Agency, but B.C. Attorney General David Eby apparently isn’t impressed.
“The results have been criticized by the bar in Ontario as ineffective — i.e. the cost of auditing financial disclosures in probate application is far more than any extra fees collected because of the audits,” spokesperson Hooper maintained.
“In addition, law firms practising in the area of estate planning advised that they had seen
an increase in their planning business (and specifically use of trusts) to avoid the scrutiny of Ontario’s probate auditors. The conclusion was that the government effort cost more than it recovered and appeared (at least in the short term) to simply increase lawyers’ tax/estate planning fees.”
With the pandemic spurring many of us to make sure we have a will, be assured the wealthy consider this manoeuvre and the huge tax savings it entails.
There is no legitimate reason all of the true assets of an estate should not be probated and applicable taxes applied — and it’s sure not the government’s job to offer the affluent new ways of tax avoidance.
The government is moving to create financial transparency in real estate and corporate ownership — why not fix this loophole?