Intestacies

Intestacies are problematic for so many reasons that this topic alone stretched two informative eState Academy webinar sessions.  

There are several ways intestacies can occur, some more common than others, but of course the most common cause being a person dying without a valid Will.  

The distribution of assets on intestacy often causes confusion even amongst the most seasoned practitioners, so if you are faced with an intestacy you should always start back at the governing legislation, Part II of the Succession Law Reform Act.  Generally speaking, if there is a spouse (married only), the spouse will get the first $350,000 (known as the “preferential share”). If there are no issue, the spouse will get the balance, too.  If there is 1 child, the spouse and child will share the balance 50/50.  If there is more than one child, 1/3rd of the balance will go to the spouse and the remaining 2/3rds will be divided equally among the children. If there is no spouse, then the children inherit or their deceased issue in the case of a predeceased child.  However, the distribution switches between per stirpes to per capita depending on who is alive, so it is important to double check the rules.

In terms of the order of priority, one might think of going down a family tree, then up it (to parents), then across (siblings), then back down (nieces and nephews-no representation. Finally, if none of them exist, you need to take a look at the table of consanguinity and keep looking for the next of kin until you find somebody.  Although common law partners and step-kids are not entitled, half relatives are equivalent to full relatives.  Oddly, the result can be a very distant relative inheriting who didn’t even know the deceased.  If there is no next of kin at all, the estate will escheat to the Crown.  The result is rarely what the testator would have chosen. 

If you are acting on an intestacy, it is a very good idea to hire a professional heir searcher.  There can be liability for both the estate trustee and their counsel if reasonable (if not thorough) inquiries were not made to identify all heirs.  

In the case of an intestacy, an application must be made to Court for an estate trustee to be appointed  (s.29 of the Estates Act). Until an estate trustee is named, the estate assets cannot be dealt with.  The spouse, whether married or not, would generally have priority for this role.  Afterwards, the next of kin would be next in line, but ultimately the Court decides who is named.

Having an estate trustee appointed is time consuming and can be costly.  The estate trustee must be an Ontario resident to be appointed by the Court and several forms must be included as part of the application including a consent (Form 74H) of the beneficiaries of the estate who together have a majority interest in the value of the estate assets, a renunciation (Form 74G) of every person entitled to be named in priority.  In addition, security (ie. an administration bond) is required, unless dispensed with.

A Will often provides the estate trustee with broad powers.  In the case of an intestacy, an estate trustee’s powers are much more limited making the administration of the estate more burdensome and less than ideal.

Several other problems were discussed in the webinars and slides, including missed planning opportunities, as well as concerns surrounding minor children.  Where there is no Will, there is no clause setting out the testator’s wishes as to who should be named guardian, as a result, the Court must make that decision with no parent input.  In addition, a minor that inherits will have their inheritance paid into Court and released at age 18, often not a desirable outcome.  A parent may be named as financial guardian to hold the funds in place of the Court, but this is not automatic and requires yet another application to Court. 

There are lots of reasons to have a valid Will in place, and all trusted advisors should speak to their clients about the importance of a Will and proper estate planning. 

If you would like to learn more, I highly recommend you watch the complete webinar, you can do so by linking here: https://landing.e-stateplanner.com/intestacies-problems-and-solutions-part-2