If you have ever asked someone to refer you to a lawyer to draft your will, you were likely given the name of an “estate planning” lawyer, a “wills” lawyer or an “estates” lawyer. Alternatively, you may have been given the name of a family lawyer or a real estate lawyer, who often draft wills for their clients.

These lawyers do a great job drafting wills. However, sometimes there are peculiar circumstances that warrant the expertise of a tax lawyer. Also, there may be instances in which an estate planning lawyer drafts a clause that is appropriate from the perspective of the client who is trying to achieve a particular objective, but in pursuing that objective, an adverse and unintended tax consequence results. Consequently, it may be a good idea to have your will drafted (or at least reviewed by) a tax lawyer.

What’s the Connection Between a Will and Taxes?

Death and taxes are more than just life’s only guarantees. In Canada and the US, death often triggers a direct tax liability. This happens through “deemed disposition” in Canada or the “Estate Tax” in the US. Because of this connection, a tax lawyer is well-suited to draft or review your will. While passing away leads to the initial tax, a poorly prepared will can create even more unnecessary tax.

I’ve Seen This Happen

Consider a real scenario where a specific clause will force beneficiaries to take costly actions. These actions led directly to additional, unnecessary taxes. In this case, several children inherited unequal shares in two family corporations. One was an active business, while the other was a holding company for real estate.

The deceased wanted to equalize shareholdings after his death. Consequently, the child with more shares will be required to either transfer some to siblings or have the corporation redeem them. Both options were problematic. Option A would trigger a capital gain for the transferor. It also created a risk of future double taxation on the holding company’s real estate. Option B would result in a deemed dividend for the shareholder. Essentially, these instructions force a beneficiary to realize extra tax. This goes far beyond the tax the estate already pays upon death.

U.S. or Other Non-resident Beneficiaries of an Estate

Having a U.S. (or other non-resident) beneficiary of a Canadian estate (which, for U.S. tax purposes would generally include a green card holder) is a minefield of tax issues. There are many examples of all the money that the estate and the non-resident beneficiary can lose because of unnecessary tax. If there are any U.S. (or potential future U.S.) beneficiaries of your estate, it is wise to seek the advice of a tax lawyer who can take these factors into consideration in drafting or reviewing your will and planning your estate.

Is a Will the Most Important Part of an Estate Plan?

Finally, I should note that preparing a proper will is only one small element of proper estate planning. Let me give you an example. A couple was once referred to me for a will. They were very modest people (in character, not in wealth), and thought that all they needed were simple wills. However, we quickly discovered that we needed to address the $4 million tax bill (this should give you an idea as to the size of the estate) they would have if (G-d forbid) something happened to them, whether or not they had wills at all. In other words, a large part (if not the biggest) of proper estate/tax planning occurs well in advance of a will ever coming into effect. Typically, where there is substantial wealth, there is a substantial opportunity for a reorganization of assets to reduce a future tax bill, as well as current/ongoing tax liabilities.

Conclusion

A will should never be drafted in a vacuum, without considering all important factors. An estate plan simply cannot be comprehensive without the proper consideration of the tax implications. In the world of tax, it is the details and the nuances that make all the difference. A tax lawyer can help to identify relevant issues and save the estate a lot of money.

If your estate includes company shares or real estate holdings, you may require specialized advice on corporate and commercial law to facilitate a seamless and tax-efficient succession of your business interests.