Executive Summaries May 6, 2020
How to Protect Your Family and Loved Ones in These Times of COVID-19
"Maître, when should we meet again?" Our clients often ask us this question at the very end of our meeting to explain and sign their Will.
A few weeks ago, in a so-called "normal" context, the usual answer was that ideally, a Will should be reviewed when any major event occurs in the client's life (a birth, a breakup, a divorce, a death, or any major change in the client's estate, etc.).
As a precautionary measure, we usually try to schedule a review with most of our clients every five years, and most of the time, life being what it is, some adjustments are necessary.
Despite all our good intentions, we have never made a recommendation to review a client's Will "in the event of a pandemic"!
Certain Issues Remain the Same : The Protection of Loved Ones and Family
In these times of COVID-19, our concerns and those of our clients are the same : we are back to basics, the priority being the protection of the physical, moral and economic well-being of our loved ones and family.
The reality we are currently experiencing can be anxiety-provoking for many of us. We are concerned about our own health and that of our loved ones, especially the most vulnerable, and we sometimes feel helpless and limited in the help and support we can give them because of the rules of social distancing.
To ensure the well-being of our loved ones, the preparation of an estate plan, or its review, as the case may be, can reduce certain fears and avoid, in the event of death, many additional worries for our loved ones.
The Usual Process for Preparing or Reviewing an Estate Plan
When we meet with our clients, the approach is always the same. It involves making an overview of their family and economic situation, making sure we understand their wishes, planning for the practical application of their wishes in the event of their death, verifying their financial data to ensure that their wishes can be carried out in the event of their death, and reducing the taxes payable.
Any estate plan therefore requires an analysis of the client's estate balance sheet, taking into account the market value of their assets, life insurance coverage, debts, matrimonial rules and agreements in place, and taxes payable in the event of death.
The client's corporate structure, if applicable (in particular, any shareholder agreement or inter vivos trust) is also analyzed in order to prepare an estate plan that will work, both in the event of incapacity, by preparing a Protection Mandate, and in the event of death, by preparing a Will.
If a Protection Mandate or a Will has been signed in the past, it is essential to review its contents, including legacies, beneficiary designations and benefits conferred to certain persons, taking into account an up-to-date estate balance sheet of the client and the above-mentioned elements.
In the context of COVID-19, it is possible that a client's estate plan, i.e., his Protection Mandate and his Will, which adequately reflected his family and economic situation at the time of signing, may no longer correspond to the reality in which we live, particularly due to the volatility of the stock market. We will address this point later...
In the Era of COVID‑19, How Do You Prepare or Review Your Estate Plan?
The question of preparing or reviewing a Will is often added to the long list of things to do between the dentist's visit and spring cleaning : a "bucket list" item that is, admittedly, a little less exciting than preparing a list of trips to be taken over the next ten years. Fortunately, it is possible to begin preparing or reviewing an estate plan, even in these times of COVID-19.
A reminder of the forms of a Will
In Quebec, a Will, to be valid, can take three forms :
- the holograph Will, which must be entirely handwritten by the testator and signed by him;
- the Will signed before two witnesses, which must be signed by the testator and two witnesses in the presence of each other. The Will may also be written by technical means (for example, by computer and then printed), in which case the testator and witnesses must initial or sign each page;
- the notarial Will, which is signed in the presence of a witness and a notary, and is received in the minutes of a notary.
The notarial Will has many advantages over other forms of Wills, including :
- it allows the testator to benefit from the advice of a qualified professional in estate planning and estate settlements, to ensure that his wishes are clearly expressed and respected in the event of death;
- It does not require the Will to be probated by the court or before a notary after the testator's death (whereas holograph Wills and Wills signed before witnesses do), which procedure is costly and creates additional delays that can slow down the estate settlement;
- it can be easily traced back upon the death of the testator, since it is kept in the notary's fire proof vault at all times, and it is registered in the Register of Wills and Mandates of the Chambre des notaires du Québec.
Like many industries, the pratice of law is reinventing itself to face the new realities.
Aware of the realities of Quebecers subject to the rules of social distancing since mid-March, the legislator adopted a special decree allowing notaries to receive, during the health emergency period, digital notarial deeds in order to allow the population to continue to benefit from the essential services of notaries, particularly in matters of real estate, family law and the laws relating to successions.
Notaries can therefore schedule one or more telephone or videoconference meetings with their clients, discuss their wishes, submit an estate plan and draft documents, and, after the clients' review, proceed to sign their Wills in notarial form without having to meet in person, all thanks to videoconferencing and digital signature software. Of course, this requires notaries to adapt to new work tools in a very short time, but this is a reality that notaries will have to deal with until the rules of social distancing are relaxed.
Some practical applications of the legal provisions if a person dies without leaving a Will
If a person dies without leaving a Will, the devolution of his or her property will be governed by the rules set out in the Civil Code of Québec.
Some practical applications and their legal rule of devolution are summarized below :
Case study #1 : presence of a married spouse and descendants1
If no Will has been left, 33% devolves to the married spouse and 66% to the descendants, in equal shares.
Case study #2 : presence of descendants, absence of a married spouse1
If no Will has been left, 100% devolves to the descendants in equal shares.
Case study #3 : presence of a married spouse, absence of descendants, presence of parents (father and mother or one of them) 1
If no Will has been left, 66% devolves to the married spouse and 33% to the parents (father and mother), in equal shares.
Case study #4 : Absence of a married spouse, absence of descendants, presence of parents (father and mother or one of them) and siblings1
If no Will has been left, 50% devolves to the parents (father and mother) in equal shares and 50% to the brothers and sisters in equal shares.
The Case of De Facto Spouses and the Persistent Myths That Circulate About Them
In Quebec, in the event of death, de facto spouses (i.e., spouses who are not married or nor civilly united) are not considered spouses under the legal rules of the Civil Code of Quebec illustrated above. Thus, a de facto spouse is not an heir in the event of death without a Will.
In addition, since they are not married, de facto spouses do not benefit from the protection offered by the law, such as the rules of family patrimony, the matrimonial regime and the alimony payable to the spouse, regardless of the duration of their union.
Many myths about de facto spouses are part of Quebec folklore, some of which are inspired by the rules applicable outside Quebec for couples domiciled in other provinces of Canada.
For example, it is false to believe that in Quebec, after one or three years of living together, de facto spouses benefit from the same rights and protections as spouses married in Quebec.
In fact, the Civil Code of Québec and certain other laws do not recognize de facto spouses and do not provide any protection for them, with the exception of a few social or tax laws (for example, the Supplemental Pension Plans Act, the Québec Pension Plan Act, the Automobile Insurance Act, the Act respecting industrial accidents and occupational diseases, the Labour Standards Act, the Income Tax Act).
It must be noted that if a person dies and does not leave a valid Will, the terms of the Civil Code of Québec protect certain members of the so-called traditional family, without taking into account the fact that a large proportion of Quebecers live in a conjugal union, without being married. This is why several legal practitioners have been calling for several years for a reform of family law to better reflect the family realities of Quebecers. Although several consultations are currently taking place regarding proposed improvements to family law, this reform has not yet been completed.
Practical case involving a de facto spouse
As an illustration, let us take the case of Annick2 and Luc2, who have been de facto spouses for sixteen years. Luc and Annick have two common children who are minors. Luc is an entrepreneur and is the sole owner of his corporation. For asset protection reasons, Annick is the sole owner of their residence and cottage. They do not have a de facto spouse agreement. The vision that Annick and Luc have of their couple is that despite the papers, everything belongs to them in equal shares.
If Annick dies without leaving a Will, since the Civil Code of Quebec does not recognize de facto spouses, Annick's property (i.e. the residence and the cottage) will devolve in equal shares to their children rather than to Luc, despite the vision that Annick and Luc had of their couple. Luc, as the legal tutor of their minor children, will have difficulty renouncing to the estate on behalf of his children.
How can a de facto spouse be protected in the event of death?
Fortunately, de facto spouses can avoid the rules of legal devolution set out above, in particular by using one or more of the following planning alternatives :
- by consulting a professional to prepare a Will that represents their wishes;
- by consulting a professional to prepare a de facto spouse agreement to reflect their vision of the couple;
- by taking out life insurance and naming their surviving de facto spouse as a beneficiary to ensure rapid access to liquid assets following their death;
- by providing, when joint property is acquired, that each spouse will hold a percentage of the property concerned (for example, 50% of the residence), and/or by providing for certain transfers in favour of the spouse, in order to granting him or her some protection in the event of death (the tax aspects must be analyzed);
In each of the above solutions, a review of the family and financial situation of each de facto spouse is required to ensure the economic well-being of the survivor of each of them in the event of death.
In These Times of COVID-19 and Stock Market Volatility, New Questions Arise
Structure of Wills and settlement of estates
As part of the settlement of an estate, the liquidators (i.e., the administrators of the deceased's property) must repay the debts and pay the taxes of the deceased and his estate, as well as pay the legacies by particular title (commonly described as legacies of specific property such as money, a residence, shares of a private company, etc.) before handing over the residue of the estate's property to the universal residuary legatees (i.e., the persons who are entitled to receive the residue of property once the debts, taxes and particular legacies have been paid).
In short, debts, taxes and legacies by particular title are paid before the delivery of the universal residuary legacy.
Decrease in the value of the patrimony and Will that includes several legacies by particular title
Recently, Robert2, one of our clients, was concerned about the impact of COVID‑19 on the value of his patrimony, which is mostly composed of investments.
Robert, a widower for several years, had signed his Will more than five years ago and his estate plan had been developed based on the estimated value of his investments upon his death, less the value of the taxes payable upon his death.
Very generous in nature, Robert had made several bequests in his Will for friends, cousins, and certain trusted people. It was understood, when his estate plan was drawn up, that the balance of his estate, after payment of the above-mentioned taxes and bequests, would be sufficient to ensure that a minimum amount of $750,000 would devolve to each of his children.
In the event of a significant decrease in the value of his estate, if Robert had died without amending his Will, his primary objective, i.e. to ensure that a minimum amount of $750,000 devolve to each of his children, would not be met, since the other legatees by particular title would have priority, to the detriment of his children (the universal residuary legatees).
Faced with the Disruptions of COVID-19, How to Change One's Will?
One of our clients, Robert, expressed, during a meeting for the review of his estate plan, his concerns regarding the market fluctuations and his wish to ensure, in any situation upon his death, a distribution of a minimum amount of $750,000 to each of his children. After discussing different mechanisms with his notary, a provision was added to the Will to provide, in the event of a reduction in the value of his patrimony upon death, for a proportional reduction in the legacies by particular title (those provided for his friends, cousins, and certain trusted persons), the whole in order to ensure the economic well-being of his children. This provision ensures that future fluctuations in the value of Robert's investments will not penalize his children.
A review of the Will, or the addition of certain preventive provisions to the Will, may also be required if new tax rules were to be implemented, such as the introduction of a Canadian estate tax or a change in the calculation of capital gains at death. However, such legislative changes have not been announced at this time.
Is it necessary to sign a new Will to add these provisions? How can a person change his or her Will when he or she is not allowed to leave the house to consult a notary?
If a person wishes to make an amendment to his or her Will, such as adding the proportional reduction clause for legacies by particular title as described above, removing a legacy by particular title or changing the names of his or her liquidators, for example, it is possible to prepare a codicil to his or her Will, a short document in which the testator simply makes an amendment to the Will without rewriting it in its entirety. The notary can guide the testator in the preparation of such a document, as well as the procedures for signing the document and its registration in the appropriate register.
With all the resources necessary to prepare or review an estate plan, even in this period of confinement, why not make judicious use of the time we currently have to begin discussions with your notary?
BCF's professionals, specialized in estate planning and estate settlement maintain all of their services by working remotely. To set up a conference call or videoconference, contact Natasha Girouard, Pascale Villani or Catherine Savonitto, notaries.
1 It should be noted that a de facto spouse (i.e. a spouse who is not married or not civilly united) is not considered an heir within the meaning of the Civil Code of Québec.
2 All names mentioned in this article are fictitious in order to preserve the confidentiality of our clients' identities.
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