In some circumstances two wills may be better than one. The British Columbia Supreme Court recently confirmed a person is entitled to make more than one valid will — a judgment confirming the legitimacy of an estate planning strategy that’s been growing in popularity, despite uncertainty whether it was acceptable under the law.
In Berkner (Estate), an executor appointed by Norman Frank Berkner, who had recently died, sought a grant of probate related to Mr. Berkner’s primary will. However, there was also a “secondary will”, which was not before the court. Mr. Berkner held a significant portion of his wealth in Berkner Egg Farms Ltd., and the company shares were passed to his heirs by this secondary will.
Leading up to the Berkner decision, some estate planners had long been drafting two wills for clients who hold much of their personal value in a company. To understand why requires an explanation of the role of the probate registry, which is a branch of the Supreme Court.
To pass down certain assets, such as bank accounts and real estate held solely in the deceased’s name, an executor must first obtain a grant of probate. This means the court has confirmed the executor’s authority to deal with the deceased’s assets for the comfort of third parties, such as banks and the Land Title Office, which will not transfer assets to heirs until the executor provides proof of a grant of probate.
Assets subject to the grant of probate are also subject to probate tax. To obtain the grant, the executor must swear an affidavit with a list of assets and the date-of-death values of those assets. That affidavit is filed at the probate registry; the probate tax payable by the estate is based on the value of assets listed in that affidavit.
Other assets, such as shares in a company, do not require grant of probate to be passed on to heirs. Many people, particularly small business owners and professionals such as doctors and lawyers practising through an incorporated company, may hold the majority of their wealth in the company.
In the Berkner decision, the Court confirmed it was lawful for Mr. Berkner to hold two valid wills: The primary will passed down the assets he held that required probate and the secondary will passed down his shares in the egg business. That allowed Mr. Berkner’s heirs to receive their share of the egg business without paying probate fees on its value or having information such as the value of each share disclosed in an affidavit at the probate registry.
This judgment will have significant implications for many business owners, who now may organize their estate plan like this, feeling confident it’s a lawful strategy.
However, some practices must be followed to ensure the plan works.
Most importantly, the primary and secondary wills must appoint different executors. That allows the executor of the primary will to swear the affidavit confirming that all known assets passed by the will, with values, are in the appended list.
However, there is one possible pitfall. Both the primary and secondary will may be subject to a will variation claim by a disappointed spouse or child. This is a statutory claim with a relatively short limitation period of 180 days that starts running from the date of the grant of probate. Once that period lapses, in most circumstances the executor may distribute the estate to the heirs.
The executor of a will that is not submitted for probate doesn’t have the certainty of this short limitation period. Such wills may be vulnerable to a variation claim over an indefinite period of time because the grant of probate is never obtained.
So what happens if a claimant brings a claim long after the assets have been distributed to the heirs? As the law stands, the executor may be personally liable to return the assets or their equivalent value to the estate, subject to the claim’s completion.
If the type of estate plan as contemplated in Berkner continues to grow in popularity, the courts or legislature may have to address that issue. Until then, executors distributing assets passed on by a secondary will may consider obtaining releases from all possible claimants. In any event, obtaining legal advice is a wise move.