Ontario imposes an estate administration tax — commonly called a probate fee — on the value of assets that pass through the probate process. For most Ontario residents, this tax is an unavoidable cost of estate administration. But for business owners who hold shares in private corporations, there is a powerful and legitimate strategy that can dramatically reduce the tax: the secondary will.
Understanding Ontario’s Estate Administration Tax
Ontario’s estate administration tax is calculated as $15 for every $1,000 (or part thereof) of estate value above $50,000. On a $2 million estate, that is approximately $29,250. On a $5 million estate, it exceeds $73,000.
The tax applies to assets that must pass through probate — meaning assets that require a court-certified grant of estate administration (the probate certificate) for the estate trustee to deal with them. Bank accounts, real estate, publicly traded securities, and registered accounts with no named beneficiary typically require probate. Private corporation shares, certain personal property, and other assets that can be transferred without court authorization may not.
The Secondary Will Strategy
Ontario law does not require that a person have only one will. A testator can execute multiple wills that are each valid, each cover different assets, and each operate independently. The secondary will strategy takes advantage of this by dividing assets into two groups:
- Primary will assets: Assets that will require probate to transfer — real estate, bank accounts, publicly traded investments
- Secondary will assets: Assets that do not require probate — most commonly private corporation shares, shareholder loans, and certain personal property
The primary will is submitted for probate, and the estate administration tax is calculated based only on the assets it covers. The secondary will is administered separately, without probate, meaning the assets it covers are excluded from the probate tax calculation entirely.
The result can be a saving of tens or even hundreds of thousands of dollars in estate administration tax for business owners with significant holdings in private corporations.
Why Private Corporation Shares Are the Key Asset
Private corporation shares can often be transferred using the secondary will without a probate certificate because the transfer of shares in a private corporation does not typically require registration in a public land registry or the involvement of a financial institution that mandates a probate certificate.
The executor under the secondary will can deal with the shares directly using the authority conferred by that will — presenting the will and letters of direction (rather than a probate certificate) to the corporation’s directors or transfer agent.
The savings are most significant when the private corporation holds valuable assets — real estate owned by the corporation, substantial retained earnings, or a significant business enterprise. The higher the corporate value, the greater the probate savings from keeping those shares out of the primary estate.
Critical Requirements for a Valid Secondary Will
A secondary will strategy only works if it is properly documented and integrated. There are several legal requirements and practical considerations:
Clear Asset Allocation
The primary and secondary wills must clearly delineate which assets each will governs. Ambiguity between the two wills — assets that could be claimed by either — can cause disputes and potentially invalidate the strategy.
Identical Execution Requirements
A secondary will must be executed with the same formality as any other will in Ontario: signed by the testator in the presence of two witnesses, neither of whom is a beneficiary.
Coordination With Corporate Documents
The secondary will should be coordinated with the corporation’s articles of incorporation, shareholders’ agreement, and any existing buy-sell provisions. If the shareholders’ agreement already contains provisions for what happens to shares on death, the secondary will must not conflict with those provisions.
Beneficiary Alignment
The beneficiaries of the primary and secondary wills need not be identical — in fact, the secondary will is sometimes used in estate freezes or succession plans to direct shares differently than other assets. But the estate lawyer must ensure that the overall plan reflects the testator’s intentions and does not create unintended conflicts.
Secondary Wills and the Estate Freeze
The secondary will strategy is frequently used alongside an estate freeze — a corporate reorganization that converts the owner’s common shares into fixed-value preferred shares, while new common shares are issued to the next generation or a family trust. The freeze caps the value of the owner’s estate for tax purposes while allowing future growth to accumulate in the hands of the successors.
When the owner eventually passes away, the secondary will governs the preferred shares (whose value has been frozen), minimizing both income tax and estate administration tax. The combination of an estate freeze and a secondary will is one of the most effective planning tools available to Ontario business owners.
Who Administers the Secondary Will?
The executor under the primary will and the executor under the secondary will can be the same person or different people. In many cases, business-owning clients name the same executor for both, but give the secondary will executor specific powers relating to the management and disposition of corporate interests.
Final Thoughts
The secondary will is not a tax loophole — it is a well-established feature of Ontario estate law that the courts have endorsed. Business owners who do not take advantage of it are paying more estate administration tax than the law requires them to. If you hold shares in a private corporation and do not have a secondary will, a conversation with an estate lawyer about your options is long overdue.
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Disclaimer: This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified Ontario lawyer.
This article is provided for general information only and does not constitute legal advice. For advice about your specific situation, please contact Goldstone Law PC directly.