Common wealth transfer mistakes (Quebec edition)

For residents outside of Quebec, view our national edition1

Wealth Transfer Strategy 6

Each year, in Canada, billions of assets are transferred at death. If you intend to transfer all or part of your assets to your heirs, you want to make sure that it goes to the people you selected and in the manner you intended. Unfortunately, wealth transfer doesn’t always go as planned. This article outlines some common mistakes that can occur when trying to transfer wealth.

Not having a will

A basic and all too common mistake is failing to have a will. A will communicates your intentions and allows you to determine how your assets will be distributed after your death. Without a will, your property will be distributed according to the legal devolution under the Civil Code of Quebec. Having a will enables the liquidation of your estate and can include tax planning to reduce taxes on death. It also allows you to choose the liquidator of your estate, the trustee of your testamentary trust, and the tutors of your children.

For more information on wills, see “Wills 101" (Quebec edition).

Will drafting errors

Having a properly drafted will is important, to say the least. There are a few things to consider that you might not be aware of.

If you’re thinking of using a handwritten will (also known as a holograph will) or a will made in the presence of witnesses, be wary. Often, there may be problems with interpreting your instructions if they’re not clear, or they may not comply with the formalities of the Civil Code of Quebec. Such issues may invalidate the will or add costs to the liquidation of the estate and delay distributions out of the estate. Having a will prepared by a legal advisor is always preferable to both a holograph will or a will made in the presence of witnesses. Also, a Quebec resident who has a notarial will can eliminate substantial costs and delays in the settlement of their estate, as this form of will doesn’t have to be probated by the Superior Court.

If you make a donation in your will and leave too much discretion to the liquidator in choosing a charity or the amount of the bequest, heirs may object to the donation, which can lead to tension between the heirs and the liquidator. This could be especially true if the donation will reduce an heir’s inheritance or if there’s disagreement about the testator’s philanthropic intentions.

In Quebec, a marriage or a civil union doesn’t revoke a previous will; however, a divorce, marriage annulment (not a separation of bed and board), or the dissolution of a civil union will void any legacy made in favor of the former spouse, as well as a designation of the spouse as liquidator of the estate, if such designation was made prior to the date of divorce, annulment, or dissolution.

Gifts or inheritances to one of the spouses either before or during a marriage or civil union are excluded from the family patrimony and won’t be included in its partition if the marriage breaks down. During the marriage or civil union, the income from an inheritance or gift may also be excluded from the family patrimony and the matrimonial regime. However, this may be jeopardized if the recipient uses the gift for the benefit of the family or commingles the assets with other family assets so it can’t be traced. Special attention must be given to the drafting of the will for any potential impact on the family patrimony and, in particular, other matrimonial regimes.

Treating equal beneficiaries unequally

Often when splitting assets, the intention is to split them equally between beneficiaries—for example, equally between three children. However, if you fail to account for the tax consequences, the wealth transfer may not be equal.

Take a simple example where you have three assets: a registered retirement savings plan (RRSP), a home, and a non-registered mutual fund portfolio—each asset is worth $1 million. You name your first child as beneficiary of your RRSP (assuming your RRSP is invested in a product that allows a beneficiary designation), and in your will, you leave the house to your second child, and the rest of the estate, namely your mutual funds, will go to your third child. You think you’re leaving $1 million to all three, but the reality is that the child receiving the mutual funds is going to have their share reduced by any tax your estate pays on the RRSPs and the mutual funds.1 Assuming a 40% effective tax rate, your estate would pay $400,000 in taxes on the RRSPs, in addition to any potential taxes on the deemed disposition of the mutual funds, which we’ll assume is $100,000. As a result, the third child responsible for the tax liability would be left with $500,000, significantly less than the $1 million the first and second child each received, and not what you intended.

Spousal issues

Another instance of failing to consider tax implications often involves second marriages or separated and estranged spouses. For example, you name your new spouse as beneficiary of your RRSP or registered retirement income fund (RRIF)—assuming your RRSP or RRIF is invested in a product that allows beneficiary designations—to provide for them after your death. You name your children (perhaps from a previous marriage) to inherit the rest of your estate under your will. You assume that your spouse will roll over your RRSP or RRIF to their RRSP or RRIF and pay tax on any withdrawal. But what if your spouse doesn’t? Instead, because your spouse is also the liquidator, your spouse just takes the cash. Well, your estate could be responsible for any taxes on the RRSP or RRIF, which effectively means it comes out of your children’s inheritance.

Under these circumstances, you can use two strategies to prevent this from happening:

  • It’s possible for the liquidator of the estate to make a unilateral election to deduct the amount paid from the RRSP or RRIF in the deceased final tax return. By doing so, this limits the tax burden in the estate and shifts the income inclusion to the surviving spouse. You may have to choose someone else, other than the spouse, as the liquidator, or you could order your liquidator to make a unilateral election (you could ask your notary to write the appropriate provision in the will).
  • If you have a RRIF and the contract allows, consider naming your spouse as successor annuitant and subrogated owner. On your death, the RRIF will automatically transfer to your spouse on a tax-deferred basis, making sure that your estate won’t have to pay the tax. For second marriage situations where you want to provide an income stream to your spouse but want to make sure that anything left in the RRIF on your spouse’s death goes to your children, see “When to consider the RRIF successor annuitant or Joint Life option.”

Failing to update beneficiary designations

When a life event such as a birth, death, marriage, separation, or divorce occurs, people often remember to review and update their will accordingly but may forget to review their beneficiary designations. Review your will and any beneficiary designations to make sure that they still reflect your testamentary intentions. This is a common oversight and often results in the courts having to decide.

Minor beneficiaries

It’s important to consider the age of the individuals you name as beneficiaries. Remember that although there are exceptions, minors generally don’t have the legal capacity to enter a contract. Until they reach the age of majority, minors will be represented by their parents acting as tutor.2 In addition, once minors reach the age of majority, they’ll be entitled to the funds without any restrictions unless you provide otherwise.

Naming a minor as irrevocable beneficiary is even more problematic and should almost never be done. When an irrevocable beneficiary is named, that beneficiary’s consent is required to deal with the contract. However, minors can’t give consent until they reach the age of majority, which means the contract will effectively be frozen until that time. Furthermore, as explained above, a death benefit paid to a minor will be administered by the tutor.

A trust can also be created in a will for the benefit of a minor child. Also, in a simpler will, a wider range of powers can be granted to the liquidator of the estate. The trust document can set out how you want the funds to be invested and when payments are to be made for the benefit of a minor. If the child is disabled, the trust could qualify as a testamentary trust and benefit from being taxed at graduated tax rates.3

Lump sum to adult beneficiaries

Sometimes providing a lump sum payment to adult beneficiaries isn’t wise. This could be the case if the beneficiary isn’t financially responsible and may spend the money frivolously, or perhaps is disabled and may lose their government disability benefits. For these individuals, an annuity settlement option or testamentary trust may be more appropriate. For more information, see “Protecting your nest egg after you’re gone—Annuity Settlement Option” and “Considering insurance trusts and the annuity settlement option.”

Failing to name a beneficiary or naming your estate as beneficiary

Naming a beneficiary in an insurance investment (such as a segregated fund contract) may save some time and costs. However, naming a beneficiary may also cause some tax issues that have to be well understood and taken into consideration in the overall planning (see the previous example under “Treating equal beneficiaries unequally” above). These issues arise whenever the beneficiary in the contract is different from the heirs of the estate.

There may be some specific reasons for having assets flow through your estate, such as to make use of tax losses or deductions, or to apply any special instructions contained in a will. If you want to leave assets to people that need supervision, such as young children, and want to leave special instructions for the use of the money or the timing of the bequest delivery, then you should consider naming the estate as beneficiary, have a will properly addressing these issues, and name a trusted person to take over the administration of this legacy.

Having assets flow through your estate may subject them to claims by your estate creditors and incur some administration fees. There’s also the potential risk of having your will or the estate settlement challenged in court and having assets frozen during the dispute. When any beneficiary is named, the assets should be excluded from your estate, granting protection against the creditors of your estate. Also, if an appropriate beneficiary designation is made,4 or an irrevocable beneficiary is named (with all related risks of doing so), an insurance investment offers you the potential for creditor protection while alive.

Unused charitable donations

If you’re planning to make a significant charitable donation after your death, take steps to make sure that your estate will be able to use the entire donation receipt. While the limit for claiming donation receipts at death is 100% of net income in the year of death and the year prior to death, it’s still possible for there to be unused receipts. Individuals making extremely large donations relative to their annual income, who die early in the calendar year or who name a charity as beneficiary of their non-registered investments or life insurance policy, have a greater risk of having unused charitable tax credits. Leaving an RRSP or RRIF to a charity isn’t usually a problem because charitable receipts can be used to offset the tax on the income from the RRSP or RRIF. If you have a spouse with enough income, your spouse could also claim any unused charitable receipts for the next five years.

If you’re concerned that you may have unused charitable receipts at death, consider making some charitable donations while alive and reduce your taxes payable now.

Ideal candidates

Individuals who want to:

  • transfer assets to their heirs
  • make sure their assets are distributed according to their wishes
  • avoid making one of the common mistakes outlined earlier

Take action

If this applies to you, then:

  • have a will prepared by your notary or lawyer (if you don’t already have one)
  • review your estate plan, including your will, beneficiary designations, and jointly held property, with your tax or legal advisor
  • review your will and beneficiary designations regularly and after a life event to make sure they still reflect your wishes, and amend or update them as needed.


It’s assumed that the home can be transferred tax free because of the principal residence exemption. If the last surviving parent isn’t capable of acting or dies without appointing a tutor in the parent’s will, a family counsel with court approval will appoint a tutor. See “Considering insurance trusts and the annuity settlement option” for more information on qualified disability trusts. 4 In Quebec, the appropriate beneficiaries we’re referring to are the married or civil union spouse, descendants, and ascendants of the owner.

This communication is published by Manulife Investment Management.  Any commentaries and information contained in this communication are provided as a general source of information only and should not be considered personal investment, tax, accounting or legal advice and should not be relied upon in that regard. Professional advisors should be consulted prior to acting based on the information contained in this communication to ensure that any action taken with respect to this information is appropriate to their specific situation. Facts and data provided by Manulife Investment Management and other sources are believed to be reliable as at the date of publication.

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Tax, Retirement & Estate Planning Services Team

Tax, Retirement & Estate Planning Services Team

Manulife Investment Management

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