Tag: forced heirship

10 Feb

What’s in a Name?

Suzana Popovic-Montag Estate & Trust, Estate Planning, Support After Death, Wills Tags: , , , , 0 Comments

In most common law jurisdictions, the devolution of an estate begins with the principle of testamentary freedom. That is, that a testator is free to dispose of his or her property in any way he or she sees fit. However, in practice, this is rarely the case. Testamentary freedom has many restrictions that significantly curtail a testator’s ability to freely dispose of his or her assets.

For instance, family law legislation provides certain rights to a surviving spouse which allow for an election to be made to receive an equalization of net family property rather than taking an  interest under the estate. Dependant’s relief legislation also steps in to provide relief to dependants who were not adequately provided for by the deceased’s estate. Furthermore, there are contractual arrangements, such as cohabitation agreements, as well as equitable claims in unjust enrichment, constructive trust, and quantum meruit, that may be available to further restrict the testator’s dispositions made in a will or under the laws of intestacy.

In contrast, in many civil law jurisdictions, there exists what appears to be a more rigid system of forced heirship. Forced heirship essentially starts with the premise that there are certain individuals to whom a testator has a moral and legal obligation to support after death, notably their descendants and spouse. Accordingly, it limits the ability to disinherit these protected heirs by setting out that a specific percentage of an estate’s value is to be reserved for their benefit. This amount can vary widely depending on the number of descendants as well as other variables such as whether any of them are disabled.

Provided that the will respects these percentages by making dispositions that provide at least the minimum required, there will be no issue of a claim against the estate. However, in circumstances where the testator has not met the minimum requirement, the protected heirs have the ability to make a claim against the estate enforcing their rights to the reserved portion.

It is important to note that a protected heir enforcing his or her forced heirship rights is not automatically an heir. He or she simply has a pecuniary claim against the estate which can be satisfied by the estate’s assets. In the event that the estate does not have sufficient assets, the protected heir can seek to enforce various clawback provisions. These vary by jurisdiction but may include inter vivos gifts made within a period of time prior to death or with the intention of subverting forced heirship rules, as well as the creation of any trusts for similar purposes.

There are similarities between forced heirship regimes and our own dependant’s relief legislation. For instance, section 72 of the Succession Law Reform Act (“SLRA”) provides for a similar clawback provision in order to ascertain the value of an estate in making an award for support. Forced heirship claims are also subject to strict limitation periods much like dependant’s relief and equalization claims. Moreover, forced heirship is not an automatic transfer of wealth upon death simply by virtue of being a descendant of the deceased. In many jurisdictions, the protected heirs have the ability to renounce these rights prior to death or may choose not to make a claim after death at all.

The main distinction is that in a dependant’s relief context, the claimant has the additional burden of proving that the testator owed them support, whereas under forced heirship, simply being a descendant can be sufficient. However, the common law courts have construed the test of whether a dependant was owed support under the SLRA quite broadly. Moreover, the definition of a dependant under the SLRA encompasses many more potential claimants then most definitions of a protective heir will permit.

Despite the fact that forced heirship starts from the opposite end of the spectrum of testamentary freedom, it reaches a similar end result. Where forced heirship applies a more rigid starting point and then gradually loosens its grip, testamentary freedom begins with an open ended proposition that is subsequently restricted. Regardless of the approach taken, both systems seek to address a shared concern of public order: the duty to provide for your dependants after death.

Thank you for reading.

Suzana Popovic-Montag

20 Jan

Cross-Border Successions and Reviewing your Foreign Will

Suzana Popovic-Montag Estate & Trust, Estate Planning, Wills Tags: , , , , , 0 Comments

Statistics show that close to 450,000 cross-border successions take place each and every year in the European Union (“EU”). These successions are estimated to represent a value of more than EUR 120 billion. However, due to complex cross-border succession laws and disputes as to which law is to govern the succession, time and money is often wasted trying to regulate conflict of laws issues.

As a result, on July 4, 2012, European Union Regulation 650/2012, commonly referred to as Brussels IV or the EU Succession Regulation, was passed. Although the regulation was passed in 2012, it only applies to deaths that occurred on or after August 17, 2015. As such, its application is still relatively recent.

The EU Succession Regulation can have a significant impact on Canadians with foreign wills that deal with assets held in an EU member state (except Denmark and with respect to the UK and Ireland, only if they opt in).  Accordingly, it is important to understand the ramifications of this regulation and consider whether a review of your foreign will may be necessary as a result.

The main effect of the EU Succession Regulation is to unify or harmonize the succession laws of the EU member states. The regulation states that the default rule will be that the law of the state in which the deceased was habitually resident is the law that will apply to the devolution of his or her estate. However, in cases where it can be shown that the deceased was “manifestly more closely connected” with another state, the law of this state will apply instead.

Of particular significance is that the rules regarding which law will apply can now be thwarted by an express election made in the will. This election must state that it shall be the law of the deceased’s nationality that will apply instead. In cases where the testator has more than one nationality, he or she may choose which is to be used for the purposes of this provision.

This regulation is intended to provide not only more certainty with respect to the laws which will govern a succession but also to allow for the testator to have more control over the process. It is important to bear in mind that most civil law jurisdictions in Europe still have forced heirship regimes. Accordingly, many testators in Europe or Canadians with foreign assets may wish to avoid having this system imposed upon them. Furthermore, dependant’s relief legislation can vary extensively between each state and it is not difficult to imagine why a testator may choose to circumvent a nation with a more stringent application of this type of legislation.

As the practical effects are just now starting to emerge, there is still some uncertainty as to how effective the changes will be. For instance, there is likely to be some discussion with respect to what “manifestly more closely connected” means and it remains to be seen whether a test will be developed to determine it. In the meantime, those with foreign assets may wish to review their foreign wills and consider what the effects of these changes may be in their situation. If need be, they may also want to consider making an election pursuant to the regulation.

Thank you for reading.

Suzana Popovic-Montag

09 Sep

Leaving an Inheritance: An Obligation or Privilege?

Suzana Popovic-Montag Estate Planning, Wills Tags: , , , , 0 Comments

According to economists, Baby Boomer inheritances are predicted to be the largest intergenerational transfer of wealth in Canadian history. With an estimated 1 trillion dollars expected to change hands, the question that arises is how will the recipients choose to manage this windfall? Some may choose to preserve this wealth in order to pass on a significant inheritance to their own children. However, many others claim they may prefer to indulge themselves or leave more to charity instead.

One of the reasons more people are choosing to either forego or limit the passing of these inheritances is that Canadians are placing a greater emphasis on each generation earning its own wealth. This generation is also less likely to feel that they have a moral obligation to preserve the value of their estate in order to pass on as much as possible. This may mean more personal indulgences as they age. As this article points out, this is not necessarily about being selfish. More often, it is about instilling certain values. These can include motivating adult children to develop a strong work ethic, emphasizing the importance of leaving a legacy, or ensuring that an inheritance is not expected as some form of a birthright. In other cases, parents feel that their children have already received a large portion of their inheritance through the investment they have made in that child’s education.

Unlike some countries, Canada does not have a system of forced heirship. This means that provided the will is valid and does not violate any public policy provisions, a testator is generally free to give their money to whomever they please. This testamentary freedom provides Canadians with no shortage of choices regarding potential beneficiaries of their estate. As a result, Family Law and Dependent’s Relief legislation is sometimes required to step in to ensure that obligations have been met. However, with disappointed beneficiaries being a regular occurrence, distinguishing between obligations and entitlement is not always as clear as we would like.

The source of this dissatisfaction often begins with unrealistic expectations. In many cases, parents have not conveyed their estate plans to their children. When the parent passes and the children discover that the estate has not been divided as they had anticipated or it is significantly less than what was expected, they are often shocked and dismayed. Unfortunately, this disappointment all too often leads to litigation, the result of which is typically that the estate is even further depleted. This is why it is important to inform loved ones of your intentions and the motivations behind them as early on as possible. An open and transparent discussion regarding your estate plan can often assist in managing expectations and avoiding costly litigation down the road.

Thank you for reading.

Suzana Popovic-Montag

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