It's been three years since lawyer Marilyn Piccini Roy, Ad. E., LLB’82, BCL’83, provided answers to the most pressing questions on estate planning during a pandemic, namely, who should have a will, and how to plan for one.
“A will is a revocable legal document. It can be revoked or modified at any time,” says Piccini Roy. A lawyer and partner at Robinson Sheppard Shapiro LLP, she is also head of their Estates, Wills and Trusts Group.
A number of questions come to mind. Can you prepare a will on your own? What about leaving bequests or legacies to charity? What are the options, and what pitfalls should be avoided? Once again, Piccini Roy is sharing her professional expertise.
Not offering any advice or opinion
Through this “Leaving a legacy: Bequests” article, McGill University, along with the presenter concerned, offer general information (the “Information”) only. The Information is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the Information presented here is believed to be factual and current, it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect those of the individual presenter concerned and are subject to change. Opinions expressed in this article are those of the interviewee and do not necessarily reflect those of McGill University or its members.
Can you prepare a will on your own, or do you need a professional?
While you may prepare your own will, it is not recommended. It is highly advisable to consult a notary or a lawyer with expertise in estate planning and will drafting. Not all professionals have the necessary skillset.
There is an old English poem called Toast to the Jolly Testator: lawyers toast the testator who makes his own will because he is the profession’s best friend. As the poem states, “He writes and erases, he blunders and blots, he produces such puzzles and Gordian knots,” that give rise to much litigation.
Can you handwrite a will in Canada? In what jurisdictions is this possible?
A will which is entirely written and signed by the testator is called a holograph or a holographic will. Such wills are common, but it is essential that it not be mechanically produced, such as being typewritten or computer generated.
A holograph will is a valid form generally recognized in Canada, with the exception of British Columbia and Prince Edward Island.
In Europe, holograph wills are recognized in most jurisdictions, such as the United Kingdom, France, Germany, Italy, Austria, Spain and Switzerland.
How often should a will be updated?
The rule-of-thumb for updating a will is every three to five years, or as circumstances or life events dictate – such as a birth, death, marriage, divorce or retirement.
If you have an existing will and you wish to make small changes, I understand that you can prepare a codicil. Can you tell me more about this, and what the advantages are?
Minor changes may be made to an existing will by means of a codicil. A codicil may alter, explain, add to, subtract from, or confirm an existing will. Whether you have a holograph will, a will made before witnesses, or (in Quebec) a notarial will, you may make a codicil in any form recognized as valid for a will. Codicils are widely recognized in many jurisdictions.
The golden rule is that a codicil should only be used for minor changes, and several codicils should be avoided. Complicated changes are susceptible to misinterpretation and multiple codicils often are prone to cause inadvertent revocation of parts of a will or the entire will.
In my practice, I avoid codicils because my experience has been more with the problematic nature of codicils than their advantages. In today’s digital world, making changes to a will is best accomplished by making a new will: it is a more efficient and secure way to achieve the desired testamentary changes.
Let's say that you wish to do two things with your will: leave assets to your loved ones, as well as leave assets to a charity. What are your options, and what are the benefits of each?
There are several ways of structuring your estate plan to accomplish both purposes, in addition to reducing the tax burden upon your death.
Take the case of John and Judy, who are married and have two adult children and both have sizeable investment portfolios. The death of the first spouse will not trigger tax if the deceased spouse has bequeathed his or her estate to the surviving spouse. A legacy to a spouse, whether outright or by means of a spousal trust (discussed below), will allow a spousal rollover which is essentially a tax deferral of any unrealized capital gains until the death of the surviving spouse. The death of the surviving spouse will trigger a tax event because of the accrued unrealized capital gains of the investment portfolios.
The first option might be to make outright gifts to the children and also to a charity of portions of the estate, preferably by means of a transfer of securities, which will eliminate tax on any capital gains and provide the estate with a charitable tax receipt. The legacy to the charity would generate a donation tax receipt, which would reduce the capital gains tax. It is difficult to calculate how much to leave to charity to eliminate the tax burden as well as provide adequately for their children; stock portfolios do fluctuate.
The charitable legacy could be complemented by designating the children as beneficiaries of a life insurance policy. Another creative option to magnify the value of a charitable gift is to name the charity as a beneficiary on a new or existing life insurance policy. (See more on gifting life Insurance.)
A variation on the dual legacy strategy would be to create a testamentary spousal trust of the residue of the estate, stipulating that the surviving spouse be entitled to all the income, with an entitlement to encroach on capital during his or her lifetime. On the death of the spouse, the trustee(s) would have the power to allocate to the charity outright ownership of an amount equal to the tax liability. The payment to the charity could also be made by means of the transfer of securities, with the tax benefits described above for the charity and the estate.
However, the legacy of a capital interest to the charity is not tax efficient (see comment below on CRT). The remaining trust property could be distributed in outright ownership to the children equally, or continue to be held in trust for a determined time.
What are my options in terms of leaving a legacy to charity through a bequest?
There are multiple forms for bequests to a charity. The most straightforward way is a legacy of a specified dollar amount. It is also possible to designate a percentage of the residue of an estate to a charity.
This may be paid in cash, but if the testator owns public securities the benefits are doubled (as noted above in the previous question).
A legacy of securities of private corporations is subject to certain conditions, notably whether the testator is at arm’s length with the charity’s director, trustees, officers and similar officials.
Other assets that could be the object of a legacy are RRSPs and RRIFs, artwork, and real estate, subject to certain conditions.
A Charitable Remainder Trust (CRT) is another giving option, but it is not as viable an option in Canada since it does not generate a charitable tax receipt usable on the deceased’s terminal tax return.
Leaving a gift to charity will result in a charitable tax receipt for the full amount. How is this beneficial to the estate?
A legacy to a charity will result in a charitable tax receipt for the full amount of the gift.
A donor is generally only entitled to offset 75 per cent of their taxable income using tax credits for charitable donations made in a given year. However, in the year of death, the donor is entitled to offset 100 per cent of their income. This is useful to reduce or eliminate a large tax bill owing on death. Any unused donation tax credits can no longer be carried back to the year preceding death, but they can be carried forward for five years.
What impact can a charitable bequest have on McGill?
A charitable legacy to McGill can have a wide-ranging impact. It can open doors to students from many nations, cultures and backgrounds, allowing a vibrant exchange of ideas and encouraging them to pursue their personal vision and goals. It could also support cutting-edge research, resulting in advancing global progress in many domains.
When or how should I make McGill aware of my gift?
Generally, only a small percentage of testators who leave legacies to charities actually notify them in advance. People with more modest estates are even more hesitant about announcing their plans.
It is understandable why people are shy about shouting from the rooftop about their charitable giving, but transparency can be beneficial, and charities do appreciate prior notification. Many have legacy societies to recognize donors and give them a sense of the impact their future gift will have. It may also help a charity budget for the future and plan new initiatives.
(If you’ve already included McGill in your legacy plans, please let us know.)
Why is it important to include safety language?
Safety language is important to ensure that a legacy to a charity always remain productive, even if circumstances change unexpectedly. (See ‘Safety language’ on the Suggested bequest language page.)
Default provisions in your will can ensure that you are directing how your legacy will be applied or used, rather than leaving it to chance or making it someone else’s decision. You should provide language in your will to indicate that if the charity merges with another charity, or no longer exists at your death, the legacy will be directed to the merged or amalgamated successor charity, or to a similar charity with similar purposes.
Note that in Quebec it is only in the context of a trust that this re-direction at the discretion of the trustee(s) to another charity could be accomplished. Absent such language, an application to the court may be required to request directives, which entails delays and legal costs.
Are there any pitfalls to be avoided with bequests to charities?
Yes. Some of the pitfalls related to charitable bequests can be avoided by doing the following:
- Ensure that the name of the charity is correct by verifying the current legal name and include, if possible, its charitable registration number and present address. (McGill’s information is listed under ‘Know the essentials’ on the Leave a bequest page)
- If the legacy is for a specific purpose, ensure that the charity can fulfil such a purpose, or is able to provide a substitute purpose if the former fails for some reason.
- Avoid over-burdening the legacy with impossible or onerous restrictions or conditions.
- Ensure that if funds are being bequeathed to implement a purpose, such as a university chair or a lecture series, that there be an adequate amount to realize that purpose.
- Strike a balance in your estate plan to avoid will contestation. If family members feel deprived given the disproportionate amounts left to them and to the charity, there may be risk of litigation. Spouses and dependants should generally be sufficiently benefited so as to diminish or eliminate that risk.
- The testator must be capable and under no undue influence.
- The will must be properly executed.
- Coordination between wills when testator has multiple or situs wills.
- Obtaining independent legal advice in estate planning and preparation of the will.
If my circumstances change, can I alter my will?
A will is a revocable legal document. It can be revoked or modified at any time if the testator’s circumstances change, provided the testator has the mental capacity to do so.
What does it mean to have a contingency clause?
A contingency, common disaster, or common catastrophe clause is essentially a default or fail-stop measure used in a will to ensure that alternate or secondary beneficiaries – be they persons or charities – receive the residue of an estate if all those entitled to receive a bequest predecease the testator, renounce to their benefits, or die simultaneously with the testator. This avoids the residue being governed by the rules of intestacy (where distant relatives may inherit) or avoids seeking costly directives from the court.
Local laws
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