When Two Wills Become One Big Problem

Small business owners who hold shares in a privately held corporation may look to the “multiple wills" strategy as an attractive estate planning solution to keep the value of their corporate assets out of probate. In this article, we review when this strategy may not be the right solution and why an alter ego trust (“AET”) or joint partner trust (“JPT”) may be a better option (for clients who are 65+). 

Consider this client scenario: your client, Rae, is 70 years old. She is married to her second spouse and has two adult children from a previous marriage. She has built a successful business. She wishes to leave her business to her kids and everything else to her spouse, while paying as little as possible in probate fees. She asks about the “multiple wills” strategy.

The concept of multiple wills is relatively straightforward. The client makes one will for corporate assets (the limited or secondary will) and one will for personal assets - essentially everything else (the general or primary will).  In British Columbia, the two wills must have different executors. On death, the executor of the general will applies for probate of that will (and discloses only those assets governed by that will), but the executor of the limited will need not apply for probate, as shares in privately held corporations often do not require a grant of probate to administer. 

On its face, this seems like an attractive strategy. It is relatively simple to implement multiple wills (although attention must be paid to revocation and debt clauses)—and it is far simpler than creating an alter ego or joint partner trust. However, to be effective, the strategy requires a high level of coordination between the two executors, and more importantly, the absence of any potential wills variation claim. 

Section 61(1) of the Wills, Estates and Succession Act in British Columbia requires that a wills variation proceeding must be commenced "within 180 days from the date the representation grant is issued" to be heard by the court. In Berkner Estate (Re), 2017 BCSC 619 (at para. 17), the Court indicated that there is no "statute or rule that requires an application be made for a grant of probate of a will", therefore a limited will can remain un-probated indefinitely. However, without a grant of probate, the 180-day limitation period for bringing a variation claim never begins, and so the opportunity to bring a claim never closes.

Returning to Rae, without a grant of probate for her limited will, Rae's spouse's opportunity to make a claim remains open indefinitely. Let's say Rae appointed her children as the executors of her limited will. They may well apply for probate anyways to trigger the limitation period, limit their liability, and gain certainty in administering the corporate assets.  

An alternative strategy for Rae to consider may be an alter ego trust, an option for individuals who are 65+ (or a joint partner trust for couples with one spouse who is 65+). Assets are transferred into the AET/JPT during the settlor's lifetime, and the owner, as beneficiary of the trust, continues to benefit from the assets. There is no deemed disposition on the transfer of assets into an AET/JPT and no 21-year deemed disposition during the lifetime of the settlor (or surviving spouse for a JPT). Because the assets are transferred to the AET/JPT during the settlor's lifetime, they no longer belong to the settlor at death and are therefore not generally subject to a wills variation claim. 

With that said, it is important for clients to understand that AET/JPTs are not immune from challenge. The recent decisions of Kramer v Kramer, 2023 BCSC 116 and Fleischer v Zoltan Elemer Fleischer Alter Ego Trust, 2024 BCSC 2162 show that the court will scrutinize transfers of assets to AET/JPTs. Both cases point to the importance of proper consideration and contemporaneous documentation of settlor capacity, intent, and the timing of the creation of the AET/JPT and the transfer of assets to the AET/JPT. In both cases, the Court upheld the validity of the estate planning associated with the AET/JPT.

The multiple wills strategy still has its place in the estate planning toolkit for small business owners, particularly for clients who are under 65 and for whom no potential wills variation risk exists. For those clients who are 65+, a better option for them may be the AET/JPT. Both strategies require careful review of the personal circumstances of the client, as both can come under court scrutiny in the context of a wills variation claim, albeit for slightly different reasons.