Family Law Act Elections After Death

As estate lawyers it is helpful to have an understanding of the spousal rights on death under Ontario's Family Law Act (the "FLA"). A surviving spouse has the right to elect between taking their rights under the Will or their statutory rights under the Family Law Act (an "equalization"). That right of "Election" can be prevented by a valid domestic contract.

Family Law Act Entitlements

The only individuals entitled to make the Election are legally married spouses – common law spouses do not have equalization rights. Moreover, only the surviving spouse can make an equalization claim against their deceased spouse's estate. Finally, there is a limitation period of 6 months after the death of the first spouse to make the election and commence an application for equalization.

Equalization - Concepts

The FLA views marriage as a financial partnership, meaning that the goal is for spouses to equally share the increase in value of property during marriage. Spouses do not share what they brought into the marriage, with some major exceptions.

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The idea behind Net Family Property is for each spouse to have the same amount of growth during the marriage. This is achieved by taking the difference in the growth, and requiring the spouse with the bigger growth to give ½ of the difference to the other spouse.

Keep in mind that property is NOT being split 50/50 – equalization is achieved by a cash payment.

Major Exceptions

Matrimonial Home

Both spouses share in the full value of a matrimonial home brought into marriage by one spouse that continues to be the matrimonial home at the time of the first spouse's death .

In other words, the value of the home CANNOT be deducted at the date of marriage.

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Inheritance and Gifts 

Timing is important.

For inheritance received prior to marriage, the value on date of marriage is treated like any other property and can be deducted. However, an increase in value is not protected.

For inheritance received during marriage, the full value of the inheritance on the date of marriage AND the growth of the inheritance at the date of death of the first spouse will be excluded if the will/deed says so.

This protection can be lost in the following scenarios:  

1. The inheritance is used for Matrimonial Home;
2. The inheritance is gifted to spouse; and
3. The inheritance is spent – the protection only exists if the inheritance is still there when the spouse dies/separates

What is the duty as an estate trustee's lawyer when making a distribution to a beneficiary that is married? Some lawyers advise beneficiaries that there could be family law implications depending on what they do with the inheritance and to seek advice if they have questions.

Surviving Spouse Equalizations

Timing 

The election must be completed within 6 months of death, NOT from the issuance of Certificate of Appointment. An extension of this limitation period is available by Court order. If you are seeking exemption, seek it before 6 months expire – otherwise, courts are typically reluctant to grant the exemption.

Process

In order to elect under the FLA, you must file an Election and commence Application for Equalization. Otherwise, the deemed election is to take under Will or Intestacy. Note that, generally, a distribution of the Estate cannot be made within 6 months of death if there is a surviving spouse.

Consequences of Election

If you’re the named Estate Trustee and are also the surviving spouse, you will not be able to act as Executor.

If you are a beneficiary under the Will and are also the surviving spouse, you will lose your beneficiary rights. 

There are also special set-offs against your FLA entitlement, including life insurance proceeds, lump sum payment of Registered Plan, and joint property.

Finally, if the value of those "Set Off" assets exceeds the amount of equalization, the surviving spouse has to repay the estate the difference.

As a result, it is crucial to know which options is better: taking under the Will or electing under the FLA? There are significant consequences to making a wrong decision.

Once the election is filed, the election cannot be withdrawn except in limited consequences (see Iasenza v Iasenza 2007 CanLII 23351)

Suggestions

1. Get limitation period extension Order – it is almost never possible to make an informed decision re: equalization in 6 months;
2. Get all information about the Will and estate values;
3. Get information about "Set-off Assets" registered assets, life insurance, joint assets, etc.;
4. Don’t jump to conclusions – do a mock equalization calculation;
5. Consider loss of executorship – loss of control and compensation;
6. Hire a family law expert; and 
7. Consider negotiating with residuary beneficiaries – they may be willing to pay you more to get their money sooner.  

If you would like to learn more, you can watch the full webinar recording here.