What Is A Corporate Will Anyways?
If you own shares in a private company (such as your own business or a professional corporation), you may have been told that you should have a “Corporate Will”. While this is a pretty standard suggestion given to anyone with their own company, few people know what that actually means.
One of the most important things that go in your Will is the appointment of your “executor”. This is the person who is in charge of managing your affairs once you’re no longer here. But, banks, government offices, and other organizations won’t just give someone access to your accounts or personal information because they show up claiming to be your executor. These institutions want proof that you are no longer alive and that the person requesting access is legally entitled to do so. The proof that they usually require is a “probated” Will.
What does 'probating' mean?
Probating a Will refers to a process in which the executor applies to the court to validate the Will of a deceased person.
Once a Will gets the court’s “seal of approval” (yes, it is literally a seal that they place on the Will,) the executor can access the deceased’s accounts and other information.
However, before the court even reviews a probate application, the deceased’s estate must pay a tax to the provincial government. Provincial probate tax varies greatly across Canada.
Private companies don't require probate
Some assets don’t really require probate. This is because there is no bank, government office, or other organization that is going to need to see a probated Will before giving the executor access to them. A typical example of this is shares of a private company—one that is owned by you alone, or together with a few family members or friends.
About 30 years ago, a few lawyers came up with a clever plan for one of their clients. Their goal was to substantially reduce the amount of probate tax that his estate would have to pay after he died.
They gave this client two Wills instead of one. One of the Wills (the “Primary” or “Public” Will) dealt with all of his assets except his private company shares. The other Will (the “Secondary” or “Corporate” Will) only dealt with his private company shares. Their thinking was that if only the Public Will was submitted for probate, no probate tax would have to be paid on the private company shares (which were dealt with in the Corporate Will only).
Well, they were right! The court approved the concept that a person could have more than one Will, and that there was no requirement to submit all of the Wills for probate. Since then, many owners of private companies have used this technique to save probate fees.
How to know if a Corporate Will is right for you
Just because an individual owns shares of a private company, it doesn’t mean that they need two Wills. Having a single Will is still perfectly valid and legitimate estate planning – and it is certainly preferable to having no Will at all. In some cases, the additional costs of preparing multiple Wills can even outweigh the eventual probate fee savings.
In the right situation, multiple Wills can definitely result in tax savings. But it makes sense to weigh the potential savings (and the fact that the savings are only realized after death) against the added costs and complexity associated with multiple Wills. But whether you opt for one Will or two, the most important thing is making sure that you have something in place to protect your loved ones.