Family, Personal and Estate lawJanuary 1999

IN FACT AND IN LAW

Planning your estate: an ounce of prevention

is worth a pound of cureby Marie-Claude Armstrong

Consider Planning YourEstate - General Notions“Before and After” Death

Obviously, the notion of planningone’s estate is not the most appealingprospect for most of us, since itinvolves an in-depth reflection on thefate of our property at the time ofdeath. However, there are severaladvantages to effective estate planning,and it should be guided by principlessimilar to those driving one’s personalfinancial and tax planning.

Also, when death occurs, whether ornot the estate has undergone detailedplanning, the heirs and liquidator willbe responsible for ensuring that thedeceased person’s last wishes arerespected, as well as for administeringand liquidating the estate effectivelyand skillfully. The heirs have rights andrecourses which they may exercise,while the liquidator must carry out his

functions in a diligent and appropriatemanner, particularly so as not to benegligent which could give rise tocivil liability.

Some estates will be opened, adminis-tered and closed uneventfully. Othersmay involve a much more complexprocess and may, for example, give riseto litigation whether due to the type ofassets in the estate, the interpretationof the will or the divergent interests ofthe beneficiaries.

This bulletin, intended to promoteawareness of estate issues, is listingdifferent factors to be considered,whether one is wearing the hat of thetestator, liquidator or heir.

Table of Contents

• Consider Planning Your Estate - General 1Notions “Before and After” Death

• The Role of a Will 21) If there is no will

2) Drafting the will in light of the propertybeing bequeathed and the designatedbeneficiaries - maximize the bequestsand avoid injustices

• Three (3) Forms of Will Permitted by Law 3• The Family Patrimony and Death 3

• Wills that Benefit the Other Spouse 4• The Liquidator 4• Successors and Heirs 4

• Legal Representation 5• Contesting a Will 5• Reconstituting a Will 5

• Bill 443 5An Act to amend the Code of CivilProcedure and other legislative provisionsin relation to notarial matters

2 Lavery, de Billy January 1999

The Role of a Will

1) If there is no will:

The estate of a person who dieswithout making a will or whose willis cancelled due to its invalidity willdevolve in the proportions andaccording to the terms stipulated inthe Civil Code of Quebec. This is calledan abintestate succession or intestacy.In such a case, it should be recalled,generally speaking, that a third (1/3)of the net value of the estate goes tothe surviving spouse and two-thirds(2/3) to the children. Where there is nosurviving spouse or children, thelaw provides that the ascendants orcollaterals, whether preferred or not,are the legal heirs.

2) Drafting the will in light of theproperty being bequeathed andthe designated beneficiaries -maximize the bequests and avoidinjustices:

It is important to draft your will ina manner which ensures that yourproperty will devolve to the personsyou wish to benefit, in the proportionsand on the terms you yourself havechosen.

Effective estate planning starts withthe preparation of an exhaustive andup-to-date account of your assets andliabilities. This planning must providefor all the tax consequences in mattersrelating to the devolution of estates inorder to take advantage of the legalprovisions allowing for the reductionof taxes payable on estate property.Since estate planning is based on thetestator’s financial and personal profile,one is therefore advised to review andadapt it as needed at least every five (5)years to reflect the changes in one’spersonal situationand patrimony.

We should point out that in theabsence of a will specifically benefitinga surviving common law spouse, he orshe is not entitled to a part of the estateof the deceased spouse, since only thelegally married surviving spouse of thedeceased is recognized as an abintestateheir within the meaning of the law.Also, common law spouses preparingtheir wills must consider the contentsof any “common law” or “cohabitation”agreement which may have beenpreviously signed.

The principle of testamentary freedomis recognized in Quebec, althoughcertain legislative limitations have beenplaced on it over the years throughprovisions concerning the survival ofthe obligation of support, the intro-duction of the family patrimony, thecompensatory allowance remedy, theapplication of the matrimonial regimeand, where applicable, a marriageagreement.

The nature of the property bequeathedand the persons receiving it must beconsidered in preparing a will in orderto maximize the benefits one wishes toconfer by will. In particular, certainprovisions must be inserted where thebeneficiary is a minor or incapable ora surviving common law spouse, andwhere the estate contains propertysituated outside Quebec and thebeneficiaries live in this otherjurisdiction.

It may be judicious to prepare a willwhich complies with the formalities ofanother country drafted in the lan-guage of use of that country. Thisadditional will is attached to the“Quebec” will and would be legallyeffective with regard to the propertyabroad. This is strongly recommendedfor persons travelling several monthsper year outside Quebec.

A trust will can often be a wisesolution, particularly when the aim isto reduce to a minimum the tax impactconnected with the transmission ofcertain property, or where one wishesto confer benefits on different personsin succession for defined periods oftime. A trust will can also be used tocontrol the estate assets after death andset up a system of income splitting.

Marie-Claude Armstrong

Marie-Claude Armstrong

has been a member of the

Bar of Québec since

1993 and specializes

in Family, Personal and

Estate law.

January 1999 Lavery, de Billy 3

Particular attention must also begiven to the transmission of a familybusiness.

In addition, in cases of blendedfamilies, a will becomes essential,otherwise there is a strong possibilitythat an abintestate transmission of theestate will produce effects that, in thetestator’s eyes, are unfair to personsdear to the testator whom the lawignores due to the effect of successivemarriages.

For example, in the absence of appro-priate gifts in a will to address theirspecific needs, children of the age ofmajority born of a first marriage whohave achieved financial autonomy willbe treated on an equal basis with theminor children from a second mar-riage whose needs may be greater.

Apart from abintestate transmission,there are more than fifteen (15) otherways to transmit property on death.These include wills, family patrimony,compensatory allowance, matrimonialregime, marriage contracts, lifeinsurance, RRSPs, annuities, co-ownership, shareholders’ agree-ments, usufruct, hereditary reserve *

outside Quebec and survival of thesupport obligation.

Three (3) Forms of WillPermitted by Law

The following forms of will arerecognized in Quebec:

• Holograph will (handwritten andsigned by the testator);

• Will in the presence of two (2)witnesses;

• Notarized will.

To be legally effective, the first two (2)types of will must be probated by ajudgment of the Superior Court at thetime of death.

The notary or lawyer preparing a will isrequired to register it in the Register ofWills with the Chamber of Notaries orBar of Québec so that it can be easilytraced after death.

Where a testator’s state of health raisesdoubts about his or her capacity tomake a will at the time of signature orexecution of the will, he or she shouldobtain a medical certificate concur-rently with the preparation of the willattesting to his or her mental andphysical capacity in order to avoid anyfuture contestation in this regard.

The Family Patrimony and Death

The provisions relating to the divisionof the family patrimony1 prevail overthe contents of the will. The testatorcannot bequeath more than his shareof the divisible value of the familypatrimony.

The surviving spouse is entitled toclaim his or her share in the familypatrimony from the estate of thedeceased spouse.

However, the heirs cannot claim thevalue of the deceased person’s share inthis patrimony from the survivingspouse since this claim is a personalright which is not transmissible to theheirs upon death.

Thus, according to a decision of theSuperior Court of Quebec rendered onMay 21, 1998, the heirs are entitledmerely to defend themselves if thesurviving spouse claims a division ofthe family patrimony (Fine (Estate of)v. Bordo J.E. 98-1343; out-of-courtsettlement filed August 18, 1998).

On the other hand, in another caserendered in 1996 (Hopkinson v. RoyalTrust Co., [1996] R.J.Q. 728), theSuperior Court stated that the right tothe division of the family patrimony isa right to a personal claim which istransmissible to the heirs, and theytherefore have seisin in this right uponthe death of the deceased. Althoughthis decision was appealed, it wasdiscontinued on April 22, 1998.

1 See our bulletin on the family patrimony,prepared in May 1996 and available onrequest.

* Translation of the French term “réservehéréditaire”. There is no English equivalent.The expression refers to the portion of the estatereserved for the heirs by law which cannot bedisposed of by the testator.

4 Lavery, de Billy January 1999

Given the two contradictory linesof case law emerging from the above-noted cases in the Superior Court, wewill have to wait until this issue comesbefore the Court of Appeal in a futurecase to settle the state of the law inQuebec on the transmissibility of theright of division of the familypatrimony.

Wills that Benefitthe Other Spouse

Since the new Civil Code of Quebecbecame law on January 1, 1995, thepronouncement of a divorce judgmentautomatically cancels the provisions ina will benefiting the surviving spousein his or her capacity as ex-spouse.In order for such prior conditionsto survive the divorce and be legallyeffective, it is necessary to prepareanother testamentary instrument afterthe divorce clearly evidencing thisintention.

The Liquidator

A liquidator may have beenspecifically appointed in a will or maybe appointed by the heirs or the court,in the event of a failure of the heirs toagree on the appointment.

The person named as liquidator canrefuse to accept the office and must,in such a case, be replaced. It maytherefore be useful to provide for a“substitute” liquidator in the will inthe event of the refusal or inability ofthe first liquidator to assume thisfunction.

If justified by the value of the estateassets, or if the composition of theseassets meets certain conditions, it maybe very useful to appoint a professionalco-liquidator.

The principal functions of the liquida-tor are to probate the will (wherenecessary), draw up an inventory of theestate property and debts, provisionallyadminister the estate, distribute theproperty and render an accounting.Liquidators are discharged from theiradministration when the heirs acceptthe final accounting.

Until the liquidation of the estate iscompleted, liquidators must ensure thedeceased’s patrimony is protected andcan incur their own liability, particu-larly if they commit an error or breachin the performance of their mandate toprovisionally administer the estate.

Liquidators must be skilled andinformed people. They must also beavailable to fulfill the functionsinherent to their office. In some cases,liquidators will be well-advised toobtain the assistance of a team ofprofessionals in order to perform theliquidation efficiently and at theleast expense.

Successors and Heirs

Persons entitled to receive a share ofthe estate are called successors. Theyare designated in the will. In the case ofan intestacy, the law grants them theright of succession according to theirdegree of kinship with the deceased.

Successors have the option of acceptingor renouncing their successoral rights,and benefit from a period to deliberateand exercise their option. This periodis six (6) months from the opening ofthe estate (i.e. from the date of death).It is extended as of right by sixty (60)days from the date of closure of theinventory, and may be extended furtherby the court.

Where a successor renounces theestate, he or she may still subsequentlyaccept it, but must do so within amaximum time period of ten (10)years from the date of opening of theestate, provided that another personhas not accepted it in the meantime.

Successors who have accepted theestate are called heirs. Heirs have rightsand in some cases also obligations theymust comply with. In particular, thesole heir of an estate must bear thepayment of the debts and particularlegacies alone to the extent of the valueof the property he or she receives. Ifthere are several heirs, each is bound topay the debts and particular legacies inproportion to their share, subject tothe rules on indivisible debts.

January 1999 Lavery, de Billy 5

Legal Representation

Legal representation occurs when arelative becomes entitled to receive anestate which was left to his or herascendant where the ascendant prede-ceases the deceased or dies simulta-neously with the deceased, or wherethe ascendant is unworthy. Representa-tion takes place infinitely in the directline of descendants, but never comesinto play in favour of ascendants.Representation in favour of preferredcollaterals (brothers, sisters, nieces andnephews) exists, but to a limited extent.Ordinary collaterals can only becomeentitled to receive the estate if they arethemselves descendants of preferredcollaterals.

Representation also occurs in the caseof a testamentary succession, but onlywhere specific conditions are met.

Contesting a Will

Any interested person who has reasonto believe that a will is not valid mayrequest that the instrument bedeclared null by way of an actioncontesting the will. This action mustinvoke the testator’s incapacity orundue influence used against thetestator at the time of signature orexecution of the will by a person whothereby benefits from the act. Theaction in nullity is prescribed by a timeperiod of three (3) years from the datethat the person invoking the nullity hasknowledge of the cause thereof.

Reconstituting a Will

A will that has been lost or destroyedby a fortuitous event after the testator’sdeath, or which is held by a third party,may be reconstituted through a legalaction by testimonial evidence orevidence by presumption.

Bill 443An Act to amend the Codeof Civil Procedure and otherlegislative provisions in relationto notarial matters

Bill 443 was adopted on October 20,1998 by the Quebec National Assembly.This bill amends the Code of CivilProcedure to allow certain applicationsrelating to tutorship for a minor,protective supervision of a person offull age, mandates in anticipation ofincapacity and probate of wills to bepresented to a notary.2

Thus, when this bill becomes law byorder in council of the government,3

this will change the judicial processcurrently applicable.

This bill provides that when theapplication is presented to a notary,he or she is bound to file an authenticcopy of the minutes of the notarialoperations at the office of the courtwithout delay, together with all thesupporting documents.

In the absence of opposition within ten(10) days of the deposit, the judge orclerk may approve the notary’s minutesif they meet the conditions prescribedby law.

Even in the absence of opposition, thejudge or clerk may reject the conclu-sions of the notary’s minutes, or makeany orders necessary to safeguard therights of the parties for the time periodand on the conditions that he or shemay determine.

The new provisions specify that thedeposit of the minutes of probate of aholograph will or a will made in thepresence of witnesses is intended solelyfor publication purposes, without thenecessity of probating the will.

Finally, the bill provides that thedesignation or replacement of theliquidator of the estate must bepublished in the register of personaland movable real rights and in the landregister, where applicable.

Whether in connection with a role youmay assume at the time of a death orin connection with your own personalestate planning, it is prudent to obtainthe appropriate advice and services foreach situation. Our team is able toassist you with skill and professional-ism on any matter connected withestate law.

Marie-Claude Armstrong

2 The bill requires notaries to obtain certificationfrom the Chambre des notaires after followingspecific training given by it.

3 At the time this bulletin went to press, theonly applicable provision of the bill was thatconferring the power on the Chamber ofNotaries to adopt a regulation on the compul-sory training of notaries for purposes of theircertification (date of coming into force:October 21, 1998).

5

6 Lavery, de Billy January 1999

MontréalSuite 40001 Place Ville MarieMontréal QuebecH3B 4M4

Telephone :(514) 871-1522Fax :(514) 871-8977

Québec CitySuite 500925 chemin Saint-LouisQuébec QuebecG1S 1C1

Telephone :(418) 688-5000Fax :(418) 688-3458

LavalSuite 5003080, boul. Le CarrefourLaval QuebecH7T 2R5

Telephone :(450) 978-8100Fax :(450) 978-8111

Ottawa20th floor45 O’Connor StreetOttawa OntarioK1P 1A4

Telephone :(613) 594-4936Fax :(613) 594-8783

All rights of reproductionreserved. This bulletinprovides our clients withgeneral comments onrecent legal developments.The texts are not legalopinions. Readers should notact solely on the informationcontained herein.

Associated FirmBlake, Cassels &GraydonTorontoCalgaryVancouverLondon (England)

Web Sitewww.laverydebilly.com

Marie-Claude Armstrong

Family, Personal andEstate Law Group :

at our Montréal officeMarie-Claude ArmstrongMarie GaudreauStéphanie Lefebvre

at our Québec City officeJean-Francois PichetteÉlisabeth PinardClaudia P. Prémont

In collaboration with ourReal Estate Law Group :Nicole Messier

and our Tax Law Group :Réal FavreauPhilip Nolan

Marie Gaudreau Stéphanie Lefebvre

Jean-François Pichette Élisabeth Pinard Claudia P. Prémont

Nicole Messier Réal Favreau Philip Nolan