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Thursday, April 1, 2010

Can a beneficiary turn down an inheritance?


Recently I was asked this question at a seminar. Another audience member turned to the person asking the question and said, "why would you want to turn it down?" I think that is the reaction of most people, but there are certainly cases where a beneficiary would rather not receive the inheritance.

I was involved in a case where a woman died without making a Will. She had a husband and three adult children. Most of the assets of the marriage, including the family home, were in her name. Under the laws of intestacy (i.e. dying without a Will), her estate was going to be divided between her husband and her children. This would leave the husband in very reduced financial circumstances. The children believed that the estate should have gone to their father and did not want to inherit their shares.

It's unusual, but it happens.

Inheritances in Canada are not taxable, so accepting an inheritance won't cause you tax problems, even if you're already in a high tax bracket. However, accepting certain property might affect your finances. It could mean that you now to have to pay for maintenance and property tax on real estate, or pay insurance on valuable items.

It's also possible that a beneficiary might refuse an inheritance on purely emotional grounds. Dealing with the aftermath of the death of a loved one brings out strong emotions of every description.

If a beneficiary does not want to accept an inheritance, he or she can turn it down. It is a gift, not an obligation. It's referred to as waiving an inheritance.

To bring this about, the beneficiary would have to give the waiver in writing. There is no prescribed form of waiver in our Surrogate Rules of Court. In the cases that I've been involved in, I drafted a waiver form for the beneficiary to sign in front of a witness because I wanted the waiver to be clear and complete. I also wanted to make sure that beneficiaries were not being pressured by anyone to give up their inheritances.

The waiver form doesn't go to the court (unless there's some kind of dispute). The waiver is kept by the lawyer who acts for the estate/executor. Normally when someone waives a gift, the gift falls back into the residue of the estate and will then be paid or given to someone else in according to the Will, or according to the laws of intestacy. That is all arranged and fully documented by the estate lawyer before any money is paid out.

53 comments:

  1. Hi Lynne:

    I purchased your book 'How Executors Avoid Personal Liability' and found it very helpful. I have one question. In our situation, one of the residual beneficiaries (who is non-resident) is considering disclaiming part of the residual benefit to which he is entitled for tax reasons. In Ontario, can a residual beneficiary disclaim part of the residual benefit or can he only disclaim all of it?

    ReplyDelete
    Replies
    1. With a waiver or disclaimer, you're either in or out. However, a beneficiary can ask that a portion of his or her inheritance be paid elsewhere using an Assignment. This basically means that the beneficiary is in theory agreeing to be a beneficiary (i.e. not waiving) but asks that the payment be split between the beneficiary and someone else. This might happen, for example, if the beneficiary owed child support and needed to clear up the arrears. Executors don't always want to get involved with Assignments, since it's extra work for them.

      Lynne

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  2. Hi Lynne, helpful article as usual. Would the application for probate still list the beneficiaries who are refusing their gift/have signed a waiver releasing their interest?

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    Replies
    1. Yes, because the application for probate requires the executor to set out the will as it is, showing the testator's intentions. If the beneficiaries later want to disclaim something, that's done afterwards.

      Lynne

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    2. Thank you. I assume the same would be true for an intestate application as well?

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  3. Hello, I have been reading your blog and I have a question for you...

    If you are the sole inheritor and the executor, can you still waive inheritance? I don't want to sound like a bad person, but I really do not wish to inherit and I do not wish to be the executor either.

    ReplyDelete
    Replies
    1. You cannot be forced either to be the executor (assuming you renounce at the beginning of the estate in the proper manner), or to receive an inheritance.

      If you've already started on the estate, you can't walk away as executor until the court allows you to do that.

      Turning down an inheritance is actually pretty easy to do. You just sign a waiver saying you don't want it. This is usually signed with independent legal advice so that the court knows you're fully advised and waiving it voluntarily.

      Once you've waived it, the executor would carry on with the estate according to the will as if you had predeceased.

      So yes, you can turn down your inheritance, even if you're the executor.

      Lynne

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  4. Hi Lynne,

    I was hoping you would clear something up for me. If the beneficiary would be inheriting debt, would they still be able to waive it?

    ReplyDelete
    Replies
    1. Under what circumstances would the beneficiary inherit debt? Loans, caveats, etc must all be paid before beneficiaries receive anything, even if that means the assets all have to be sold without the beneficiaries getting anything. Can you give me an example?

      Lynne

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  5. Does this waiver option also apply if there was a will? Or do different rules apply in that case?

    ReplyDelete
    Replies
    1. Yes, you can waive an inheritance under a will.

      Lynne

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  6. If a beneficiary were "hostile" to the deceased and refused to either sign a waiver or accept the inheritance, would the other beneficiaries still inherit, or would the estate be in limbo until the courts stepped in? I ask because my sibling and I are to inherit our parents' estate but my sibling is estranged from the family - though still in the will - and will likely refuse to do *anything* - sign anything, claim anything - regarding the will/ inheritance for purely emotional reasons of "principle"; and I would like to know what impact, if any, this may have on my/ my family's share of the inheritance. Thanks so much.

    ReplyDelete
    Replies
    1. It's possible that the share of the person who won't participate would be paid to the Public Trustee of the province, simply so that the estate would not end up being held hostage by that person. Not doing anything doesn't necessarily mean that the person is waiving their inheritance and there is no automatic response to a person who won't participate. It's possible that a judge would decide to do something different with the person's share, such as give it to his/her children or divide it among other beneficiaries, but I would think the non-participation would have to go on for some time before that would happen. In general, judges don't seem to like to extinguish rights that were given to someone under a will simply for convenience.

      Lynne

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  7. This comment has been removed by the author.

    ReplyDelete
  8. Hi, what does this mean: person submitting rights to the court as a beneficiary? Does the Lawyer representing the estate for the executors(plaintiffs) also act for the beneficiary as the person submitting rights to the court. Thanks

    ReplyDelete
    Replies
    1. I don't know what that phrase means. Rights are not submitted to the court, but applications are submitted to the court to enforce rights. Perhaps that's what you mean? I can only guess what you mean by the first question, but I can answer the second one. The lawyer for the estate only works for the executor, not for the beneficiaries. In theory, the executor represents the beneficiaries, but if the estate is in court, most likely that relationship has broken down.

      Lynne

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  9. I am on disability (person with disability and cpp) I am wonder how an inheritance will effect my disability. I may be getting 2 inheritance (father and brother) but am worried that it may mess up my disability. The amount of the inheritance is not that much, not worth losing my disability for. Any help would be greatly appreciated. or being pointed in a direction of some reliable information, many thanks.

    ReplyDelete
    Replies
    1. You are right to be concerned because inheriting money can cause a beneficiary to lose disability benefits. The provinces allow different amounts to be owned by a person before they are cut off, so the exact amount is something you could find out about at your local benefits office.

      If your father and brother were aware of your disability, they may have planned around it by putting your inheritance into a trust. The type of trust used is called a Henson Trust, and is valid in all provinces except Alberta. When an inheritance is held this way, it does not cut off the beneficiary because the trust is discretionary - meaning that the trustee doesn't have to give you anything from it unless he or she thinks it's the best thing to do. Do you know whether your inheritance is held in trust? if your father and brother have already passed away, the person to ask is the executor of the will.

      Lynne

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    2. no it is not held in trust, and yes they have both passed away. Can the executor set up this trust after the passing of the person?

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    3. No, the executor doesn't have the legal authority to make that choice. He has to give you your inheritance.

      Lynne

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  10. I know that a beneficiary can waive an inheritance after the parent dies. Can a waiver be submitted prior to a death?

    ReplyDelete
    Replies
    1. That presents logistical problems. While a testator (person whose will it is) is alive, his or her will is more or less dormant, waiting to come into effect at some future date. The executor of the estate has no right to do anything while the testator is alive.

      So who would the waiver be submitted to? Not the executor because there is no executor while the testator is alive. So it would be submitted to the testator. At that point the testator could change his or her will, or not. If he or she did not change the will, the waiver has been ignored and means nothing.

      Lynne

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  11. Great article, question, I am a Canadian citizen who has resided in the US for the last 16 years. I have been told by other Canadians here that when you inherit money from a Canadian estate as an American resident you are taxed to the hilt. What if I were to leave the money in Canada? Would it matter? Or am I taxed purely based on my residency? If I'm going to face massive taxes, I may as well decline it and give it all to my brother. I am only asking about Canadian estate laws (I'm a CFP here and am familiar with US law) One of my parents lives in Quebec, the other has her investments in Ontario but resides in France.
    Thanks very much,

    ReplyDelete
  12. Can a waiver be implied? Husband of intestate person who owned house in her name (no matrimonial home issue) becomes appointed Estate Trustee. In that position transfers property to 2 children as joint tenants. Is the an implied waiver?

    ReplyDelete
    Replies
    1. No a waiver is never implied. Who do you believe has waived something here? The husband?

      Lynne

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    2. Yes. Husband was entitled to $200,000 plus one third of residue under Ontario law but as court appointed trustee transferred title to children.

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  13. Hello
    This is very useful information. Thank you. I had a question: If the child of the deceased waived inheritance can their children (grandchildren of deceased) still inherit their share?
    We have a situation where my uncle died having owned 50% of a property. His brother owned 25% of same property. The brother became Estate Trustee (there was no will) and advised the deceased's children to waive their inheritance so he could sell the property quickly and give them their shares. The property never sold and the brother subsequently filed for bankruptcy and now his Receiver is claiming his 25% plus the deceased's 50%.
    The children that waived now have their own children (born after the deceased died) so do those children still have any interest in the property?
    I thank you for your time. Please advise as this is a case where these children stand to lose their inheritance through a foolish decision.

    ReplyDelete
    Replies
    1. In my opinion, the grandchildren would not have any right to a share of the estate.

      This is because when someone waives their inheritance, they are basically saying that the estate should carry on as if the waiving person was deceased. Because the person who waived was a child of the deceased, his or her share would more than likely pass to his or her children (I say more than likely because the will could say something different).

      However, the grandchildren would have to be alive at the time the deceased passed away. The timing is crucial because you can only give an estate to whoever exists at the time.

      Because they were born after the deceased died, my opinion is that they have no claim.

      Lynne

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  14. Hello Lynne,
    My Dad recently passed away and has more debts than savings. My Mom is the executor but she has been separated from him for 20 years. Should she refuse the succession to avoid all the stress of creditors?

    ReplyDelete
    Replies
    1. That's not really a legal question, is it? It's a personal decision to be made by your mom. Nobody loves being an executor because it's stressful and thankless. If she doesn't want to do it, she doesn't have to. She's not personally liable for his bills but creditors can be persistent and annoying nonetheless.

      Lynne

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  15. Hi
    I love your column and have read it for a while. I have a question now though. My father recently died and willed a vacation property to me. it has a healthy mortgage on it, capital gains are due and it needs serious repair. i would like to waive my rights to it as it is clearly a liability. but there is a devolve clause, ie if i refuse then before it goes back to the estate my children, age 9 and 11, have to decide if they want it. the debt coming out of their allowance i guess. i have been told that i will need to get them assessed and represented in order for them to actually waive this. is this true? how does this happen? costs? it seems unreal.

    ReplyDelete
    Replies
    1. If the cabin is left to you, the mortgage and the capital gains tax are paid out of the general estate, not just by you. Everyone thinks the tax and mortgage are paid by the person receiving the asset but that is not the case. For example if you are to receive the cabin but there are 3 kids sharing the rest of the estate, the 3 kids are the ones sharing the tax on the cabin. Debts always have to be paid in full before anyone gets any inheritance, so if the cabin is that bad why not just let it be sold to pay the debts and then take any leftover sale funds? Since I don't know what else is in the estate or who is to inherit it, I don't know how much of a difference this makes, but make sure you thoroughly understand the tax implications before you make a decision.

      Lynne

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  16. My brother passed away without a will and as the only sibling I was designated a beneficiary of his RRSPs. I love and respect my brother, but it is much simpler and practical for me to not inherit these investments. It's just my mother and I left in our family and we've agreed that she will apply to administer the estate. As it is a simple estate with assets only being a modest RRSP, do we need to get a lawyer involved in order for me to waive my rights as beneficiary? It almost would be simpler if I could just have the institution that handles his group employee RRSP change the beneficiary to my mother, but this probably cannot be legally done.

    ReplyDelete
    Replies
    1. You're right, you can't change the beneficiary designation. However, I wonder whether they'd pay it to the estate if you sent them an Assignment to Pay? I haven't seen that done, but it might work.

      Alternatively, an easy way to do this to receive the cheque then just pay it to the estate.

      As you may realize, RRSPs become taxable on death, so there will be income tax payable on your brother's RRSP. If there are enough assets in the estate, the taxes will be paid from the estate. However, if there is not enough in the estate, CRA will pursue you for the tax. So maybe be confident that the estate contains enough money to cover that before you hand over the cheque to your Mom. CRA won't care what you did with the RRSP cheque if you're liable for the tax.

      Since the only asset is the RRSP, I assume that there are other reasons for you to believe that someone needs to be appointed as the administrator of the estate. Such as preparation of tax returns, I assume, since an RRSP does not require an estate administrator.

      You don't need a lawyer to waive your rights, though it seems to me that you may not know what all of them are if you don't ask a lawyer.

      Lynne

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    2. Thank you for your advice.

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  17. Hi Lynne,
    My mother in law (mil) has over 90k in debt (credit cards mostly). Unfortunately, she's living her last days with us. Apparently My brother in law (bil) signed her wlll years ago and will be forced to pay off her debts- this was told to him recently by the notary (a friend of mil). What kind of will would require someone else's (in this case bil's) signature? And can't bil just waive the inheritance/debt when it happens?
    Thanks

    ReplyDelete
    Replies
    1. That really does sound odd. Nobody can sign a will for anyone else. Perhaps he co-signed for the credit cards or signed a guarantee of some kind.

      I notice that you said he was advised by a notary so I wonder if this is happening in Quebec. The rules are different there for estates, and I believe that if you accept the inheritance you also accept the debts. However, I cannot see how that could happen prior to the death of your mother in law.

      Some piece of info is off, or missing.

      Lynne

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  18. Hello Lynne,
    My sister and I are listed as beneficiaries to my mother’s estate. My sister has been estranged from the family for many years and is living outside the country. She has over a decade’s worth of unpaid child support, after she left her husband and child.

    With her listed in the will, can debt collectors/government get access to her share of the estate before she can? If yes, can she chose not to accept the inheritance and gift it to her daughter so she can directly receive the inheritance before the creditors?
    Thank you!

    ReplyDelete
    Replies
    1. As a general rule, no, creditors and debt collectors cannot get a beneficiary's share of an estate. The executor has no obligation to pay the debts of a beneficiary. In addition, creditors almost never know about the inheritance anyway. If your sister were in bankruptcy, that would be different. The executor would be legally bound to pay your sister's entire inheritance to the trustee in bankruptcy, who would then pay the creditors.

      The government is another matter. For example, child support collection departments have far-reaching resources and powers that debt collectors do not.

      Let's say for discussion purposes that there is a demand against the estate for payment of a debt. Your sister cannot avoid paying the debt by giving her inheritance to her daughter.

      She'll basically have two choices. If she waives her inheritance, she doesn't get to say where it goes. She is basically saying "I don't want it" and the executor will then treat the matter as if the sister has died.

      The other option is for her to direct the executor in writing to pay her share of the estate to her daughter instead of to her.

      However, keep in mind that "her share" is first going to be reduced by the debt and then the rest goes to the daughter.

      Frankly, if it were that easy to get out of paying a debt, everyone would do it.

      Lynne

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  19. Hi Lynne,
    We have an interesting situation. Our mother just died and left no will. Our mother & father were legally separated and our father had a stroke 6 years ago and is living in a care facility. My oldest sister is my father's power of attorney for all his decisions except medical.

    It seems like the laws of intestacy would apply and would go to my father first. This puts things in a bad situation because it seems it would all go back to the government when taxed and the amount he pays for his care facility would skyrocket.

    We aren't sure what would be best in this scenario. It is hard when the person who will be the beneficiary doesn't understand money (because of his stroke) and my sister handles his affairs. Do you have any suggestions for us?

    ReplyDelete
    Replies
    1. If there is no will, the law of intestacy applies, and that's that. However, that does not mean that the whole estate goes to your father. It depends on which province your parents live in. The usual arrangement is that the spouse gets 1/3 and the rest is shared among the children, but since I don't know where they are, I can't say for sure that is the formula that would apply.

      Lynne

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  20. Hi Lynne,

    Great information here. I have read many of your posts. You are great! I need your advice.

    The Background:
    My father and his brother used to own a rather large company together and it went bankrupt over 10 years ago. My uncle (his brother) filed for personal bankruptcy shortly after to protect him from Directors Liability. My father, the only other director, did not ever file for personal bankruptcy, and over the years a debt to the Ontario Government has grown to be quiet substantial. He had planned to potential file for personal bankruptcy in the near future.

    However, my grandfather recently passed unexpectedly. Leaving the estate to split evenly between my uncle and father. My father is also the executor. My father is nervous to accept his portion of the inheritance under the assumption that the Ontario Government may try to seize it in its entirety.

    Questions:

    1) Would it be possible for my father to redistribute his half by refusing the inheritance by writing a waiver? At that point his portion would go back to the estate which would likely be distributed to the only other beneficiary, his brother? Could his Brother then in pre-arranged agreement, direct the executor in writing to pay that share, to our mother or split evenly between the grandchildren leaving my father out of the estate dealings?
    2) Would there be any tax implications for my uncle by re-assigning the payment to another family member? Any reason he may not want to do such? When an inheritance is accepted by my uncle and reassigned, does the re-assignee have any different tax implications since they were not the original named beneficiaries?

    Thanks so much!

    ReplyDelete
  21. If I decline my inheritance will it hold up the other benifeseries from getting their money

    ReplyDelete
    Replies
    1. No, not if you decline it in writing. Once the executor has that, he or she can carry on as usual. If you don't put it in writing, yes that will likely cause a delay to the entire estate.

      Lynne

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  22. Hi Lynne,
    My parents have a will that will split everything to my sibling and I 50/50. My spouse however is the issue, I am sadly in a domestic situation, with future (secret) goals to end the marriage. He has big plans for the money I will inherit, and due to the domestic situation he will succeed in blowing it on certain addictions. Should I ask my parents to redo their will to give 100% to my sibling (the executor), maybe with my half to be held in trust for me and my children to receive at a safer time when I am single, or should I just waive it at the time of receipt? My parents did not work a lifetime to have their savings blown by my abuser, and sadly I wont be able to safeguard it from him due to the nature of our situation. Thank you kindly for any insight. I am in Alberta.

    ReplyDelete
    Replies
    1. If your parents are willing and able to re-write their wills, that would certainly help the situation. However, think twice about giving everything to your sibling. Once your share is given away, you have no legal right to get it back. This might not be a problem if your sibling outlives you, has no marital problems of his own, is co-operative, never develops dementia, etc etc. But this is real life and stuff goes wrong.

      Holding the funds in trust for you is most likely a good solution. The funds would be held by the executor of the estate so it would probably be best if you're not an executor/trustee.

      Take care with how the trust is written so that you don't accidentally set up a trust that you cannot access in the future once you're single again. Try to find an experienced lawyer to draft this trust for you. There are plenty of really good wills lawyers in Alberta. If you're near Edmonton I can give you some names.

      Lynne

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  23. Hello Lynne, I was wondering, can my niece & nephew's mom turn down their inheritance? My mom passed away and left her property to me, my sister & my brother (1/3 equal parts) however my brother predeceased my mother with no will. As a result his children are due to inherit 1/3 of her house. Now, they are in a much better finacial position than the rest of our family. Can she turn down the inheritance on their behalf? Since that would require a mortgage to be taken out to pay them their share since we wish to keep the house under my name?

    ReplyDelete
  24. Hi Lynne,

    My father refuses to write a will despite many efforts that I have made, however he has 3 properties and some amount of money in 2 credit unions. All the homes he owns he is not the sole owner, my mother and brother are listed as well. Does not having a will pose a problem if everything is joint (including bank accounts)? For example, upon his death, would the property have to be sold or can the remaining owners (mother and brother) simply remain as the owners? I live in Ontario and there are no mortgages on the properties.

    Regards,
    Eveline

    ReplyDelete
    Replies
    1. Hi Eveline,
      Obviously I think he'd be better off having a will. But having joint property arrangements will certainly help in terms of establishing who is going to get those properties. However, since he owns 3 properties there is a question of whether there will be capital gains tax when those properties leave him. If the bank accounts are also joint, where will the tax payment come from?

      Let's not forget the potential cost in legal fees, time, stress, and family disruption that tends to follow ownership of a joint bank account between a father and an adult child. A will can help clear up that question before it even becomes an issue.

      Another issue is that he will not have named an executor. If there is anything that needs doing on his estate, such as filing tax returns, there will be nobody with the legal authority to do that. Being his next of kin will not allow anyone to access information, file returns, etc.

      I assume that along with the refusal to make a will, he has also refused to prepare an Enduring Power of attorney and a healthcare directive. If he should lose mental capacity to deal with his own affairs, he has nothing in place and someone may have to apply to the court to become his guardian or trustee. In other words, they might have to spend thousands to do what he could have done for hundreds.

      I wonder why he refuses to make a will? I'm always curious about people who are so adamant. To me it's like refusing to see a dentist or doctor when you know you should but you don't.

      Lynne

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    2. Hi Lynne,

      Thanks for your prompt reply. He is a stubborn individual who does not see the need for it. He believes that having everything joint is suffice and he is hard to convince otherwise. I will try to recommend a holographic will and see where I can go from there.
      Thanks for all your insight.
      Eveline

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  25. Hi Lynne,
    My Dad passed away in 1999. He lived in Manitoba but also had a cottage property in Ontario. A final tax return was completed including the capital gains on the cottage. The cottage property was left in his will to his 5 children as joint tenants. The executors (my 2 oldest siblings) never actually registered the property in Ontario in our names but have now opened probate to deal with it.
    Can 4 of the siblings waive their 1/5th inheritance to the cottage and accept their portion of the land only, leaving the entire cottage to the other sibling?
    This other sibling is the only one using the cottage and has made significant upgrades. We would then agree to sell our portion of the land to him but only want to pay capital gains on the increase in the land, not the cottage.
    Thanks, Ernie

    ReplyDelete
  26. Hi great article ... Two quick questions.

    - if you waive the right to a inheritance can one still collect the death benifit to cover funeral fees ?
    - if you accept the inheritance do you then take on any debts ?
    Only Living relative and reside in Quebec.

    ReplyDelete

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