In an appropriate situation, the use of multiple Wills could be a way of avoiding some probate tax. Probate is the legal process of having the Will validated by the court and administration of the deceased’s effects granted to the executor proving the Will. It is usually requested by banks and investment firms before they will allow the executor to deal with certain estate assets. Courts charge probate duty and a fee to issue a probate certificate to the executor. There are also legal fees to have this process completed by legal counsel. Avoiding these fees and delays is the goal of a multiple Will plan. Here is how it could work:
You execute two Wills; a General Property (GP) Will and a Limited Property (LP) Will. Your GP Will governs the assets of your general estate that likely will attract probate tax, such as bank and publicly traded investment accounts. Your LP Will governs your other assets, such as your private company interests and any personal property that would normally not require probate. Your LP need never to be submitted to the court for probate. For example, the value of any shares in your business corporation would not have to be included in calculating probate tax since a probate certificate would not be required to transfer ownership of this asset to your beneficiaries.
A Predecease Transfer of Assets to Your Spouse
Another possible way of saving tax involves a transfer of selected assets to your spouse. The Tax Code imposes a capital gains tax upon your death. As an example, if you own shares in your own private company which have appreciated in value and have an unrealized capital gain, these are deemed to have been sold upon your death. However, if your Will directs your executor to transfer this asset to your spouse, then this “deemed sale” will not apply. Instead, the asset passes to him/her tax-free thus deferring any capital gains tax until the day when he/she sells the asset or dies.
The foregoing provides only an overview and does not constitute legal advice. You are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained in the context of your own particular circumstances.