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When working on estate planning documents in Alberta, testators often ask about estate taxes. Some jurisdictions, like Ontario, have legislated estate taxes. However, there is no estate tax in Alberta. There are probate fees, but these fees are relatively minimal compared to jurisdictions with true estate tax.
What is an estate tax?
An estate tax is a tax calculated based on the value of all the assets owned by the deceased or registered only in the deceased’s name. The types of assets that attract an estate tax include bank accounts, investments, shares in public corporations, vehicles, and real estate.
Typically when someone with a will dies, their will is “probated”, or registered with the court. Probate is useful because some institutions, like banks, typically refuse to release funds or assets belonging to a deceased person without an Order or other documentation from the Courts. All provinces have a fee to probate a will, but the rates charged in Alberta are amongst the lowest in the country.
Not all assets require probate. For example, shares in a private corporation, or debts owed to the deceased by a family business typically do not require probate. If these assets be distributed without being subject to an estate tax, a lot of money can be saved.
What are “dual wills”?
Dual wills, or secondary wills, are a tool used by estate lawyers to remove assets that do not need to be probated from the reach of the estate tax. Because estate taxes are based on the value of assets probated, removing assets from the part of the estate subject to probate can save a lot of money.
In Ontario, testators can create dual wills. The first will deals with assets that require probate and those assets will be subject to the estate tax. The second will covers the remainder of the testator’s assets, and because that will is never probated, the assets it contains escape the estate taxes. Because of this, having multiple wills in Ontario can create advantages for estate planning and tax reduction.
What does this mean if you are making a will in Alberta?
If all your assets are in Alberta, you do not need to create two wills because Alberta has no estate tax, only probate fees. While probate fees are based on the value of the estate, the maximum probate amount in Alberta is $525, so it is not cost effective to create more than one will.
If you live in Alberta, but have assets in other jurisdictions, you will want to look at the estate planning landscape in those jurisdictions to determine if having dual wills, or using other tax planning strategies, creates a tax or estate planning advantage.