December 2015
PFD | Family

Testamentary substitution: an important tool to pass on your estate

By Marie-Sophie Marceau Lawyer

With the prevalence of stepfamilies, drawing up a will and expressing final wishes may prove challenging for some. Leaving assets to a partner who is not your child's parent can raise many questions. Once your assets are transferred to your spouse, they may slip through your children's fingers.

But the solution to the problem, which often concerns stepfamilies and couples without children but also comes up in many other cases, may be substitution.

Under article 1218 of the Civil Code of Québec, "substitution exists where a person receives property by a liberality with the obligation of handing it over to a third person after a certain period." In the case presented here, a man included a testamentary substitution in favour of his four children on the residue of the property he left to his wife, who was not the children's mother.

Upon her death, the deceased's wife had to deliver the residue of the property she had received from her late husband to his children and could not distribute it at her discretion. It should be noted that, in this particular case and in accordance with the terms of the will, the man's wife could own and use the assets to support herself and was only obligated to bequeath the residue upon her death.

This arrangement raised specific questions: is the interest on the bequeathed investments that was not used by the deceased's wife prior to her death subject to the substitution? Should it be given to the man's children or to his wife's heirs?

In a ruling (Boudreault v. Boudreault, 2015 QCCA 1781 (CanLII)) on October 26, 2015, the Québec Court of Appeal decided the issue and concluded that the interest on the bequeathed investments was part of the estate intended for the respondents?the man's children. The deceased's wife was the owner of the fruits and revenues of the property and could therefore dispose freely of the interest on the investments during her lifetime. However, her right of ownership was limited by the substitution?the constitutive act at the basis of her right?by which, upon her death, she was to return the rest of the estate she had received to the deceased's children.

Over time, interest on investment income can amount to significant sums. A testamentary substitution enables you to choose who will receive these sums upon the death of your first heir. It is an effective way to ensure your spouse's livelihood and ultimately pass on your estate to a third party, such as your children.