What is a Corporate Will?
A corporate will (sometimes called a secondary will or restricted will) is a significant option for estate planning with respect to your business interest in a privately held company. In British Columbia, reasons for having a second will include avoiding the delay and expense of probate and therefore the “tax” under the Probate Fee Act, which can be substantial.
What happens if an executor doesn’t follow a will?
As an example, if you are a business owner, you can have two separate wills. One will would deal with personal assets and the other (with a different executor) would deal with your corporate shares. Your general will may need to be probated, while the corporate secondary will is designed specifically to avoid probate. This will allow you to transfer the shares legally to a new owner or to the beneficiary without being subject to the probate fee which is calculated based on the fair market value of those shares at the time of death.
Things to keep in mind
Before going through the effort of drafting a corporate will, make sure you seek legal counsel to see if it is the right choice. While it may reduce some of the probate fees that your estate would be subjected to, it may not be a big enough reduction to make a difference. However, shares worth $500,000.00 would add $7000.00 in probate fees if they are part of your general will admitted to probate, so there is a fairly low threshold.
Both a general will and corporate will are governed by the Wills, Estates and Succession Act – as well as centuries of previous court interpretations of the legal principles affecting these. In British Columbia, a competent adult “of sound and disposing mind” (the “will-maker,” sometimes called “testator”) may make a valid will appointing one or more other adults as executors to carry out the terms of the will, describing the authority of the executors and setting out how the net estate assets are to be distributed to beneficiaries (heirs).
Find out what happens if beneficiaries disagree.
Lawyers who take instructions from clients for the preparation of wills, have a legal and professional obligation to be satisfied that the person is an adult “of sound and disposing mind.” This means, among other things, you will be asked to produce valid picture ID and provide information about your spouse and children, if any, as well as your assets and liabilities. This is not because we are nosey, but because proving you know these things is part of assessing “sound and disposing mind.” Also, some things such as jointly held assets, and assets which may have named beneficiaries such as life insurance, RRSPs, RRIFs, TFSAs and so on, pass outside the will(s), but have tax and other consequences for your estate and should be considered in your planning.
Do you need a lawyer to make a will in Canada?
There are other planning processes and documents we can assist you with such as corporate “estate freezes”, reorganizations, trusts or disability trusts which may be applicable to you or your family, but those are beyond the scope of this article.
© Linley Welwood LLP. The contents of this article do not constitute legal advice. Readers should seek legal advice in relation to their own specific circumstances.