The precise nature of the executor/trustee/personal representative’s obligation to advise the surviving spouse is not clear. If the estate trustee is responsible only to the estate and its beneficiaries, he or she should not be required to tell the surviving spouse of the potential rights he or she may have under the Family Law Act (“FLA”). However, if it is the duty of the personal representative to help the surviving spouse, then how far does that duty extend?
Recently, the Superior Court of Justice decided in Webster v. Webster Estate, where the surviving spouse missed the six-month period, within which to file an election in favour of an equalization of Net Family Property (“NFP”). It was argued, in the application to extend the time to elect, that the personal representatives of the deceased husband’s estate had a duty to advise the surviving spouse of her entitlement to make an equalization claim. Although Robertson, J. rejected this argument, the facts were somewhat unusual:
- Two of the four estate trustees consisted of the surviving spouse and her son, and the court had made a representation order that the son act on his mother’s behalf for the purpose of bringing the application (she having become mentally incapable due to advancing Alzheimer’s.) Furthermore, even though the son was aware of the equalization claim within two months of the death, inexplicably he took no steps to pursue the claim for another seven months. For such reasons, this precedent is unlikely to carry much weight on the specific issue of the duty owed by an estate trustee to the surviving spouse. No doubt, this issue is going to arise again, and presumably, on cleaner facts, such as those between a personal representative and an angry widow(er), or an irate group of beneficiaries or next-of-kin.
It would be wise for the personal representative not to simply treat the surviving spouse as a creditor of the estate. Instead of that, the personal representative should advise the surviving spouse that he or she perhaps has rights under the FLA and that he or she should know more about it by engaging independent counsel. If more than that is done, it would put the personal representative on a slippery slope vis-à-vis his or her duty to uphold the will and act in the best interests of the beneficiaries of the estate. Remember, subject to certain exceptions, a spouse cannot be a beneficiary and elect/take her rights under the FLA. Thus, to advise her as a beneficiary about her FLA rights may be contradictory to a personal representative’s duties.
A Lawyer’s Checklist
There are significant areas of inquiry that a lawyer has to consider while helping a personal representative in a situation where a surviving spouse has made, or is contemplating making, an equalization claim under the FLA.
A) If the surviving spouse is named as a personal representative under a will, steps are to be taken to avoid or address the inherent conflict of interest for the spouse.
B) If an election under the FLA is permitted:
- It is to be confirmed that the deceased spouse died on or after March 1, 1986;
- It is to be ascertained that the spouses had their last common habitual residence, if any, in Ontario;
- To examine any domestic contract to which the deceased was a party, to see whether the surviving spouse has waived any right to make an equalization claim;
- To find out whether a previous claim under s. 5(3) (improvident depletion) has been made successfully by either spouse, barring the surviving spouse from making a claim under s. 5(2); and
- To determine whether the six-month deadline for filing an election and application has expired.
C) To find out the impact of an equalization claim on the surviving spouse’s entitlement to:
- The proceeds of any policies of insurance (group or individual) on the deceased spouse’s life; and
- Any lump sum benefits under any pension or similar plan arising on the death of the deceased spouse. (It means enquiring whether the deceased spouse made a written designation that such proceeds or benefits were to be in addition to any equalization claim, FLA, s. 6(6). Possibly, the designation would be among the deceased spouse’s papers and not with the insurer or plan administrator. Moreover, the FLA stipulates only that the designation have been made “in writing”. So, arrangements are to be made to claim from the surviving spouse the amount, if any, by which, a) The proceeds of all applicable insurance policies; and b) the value of all lump sum pension or similar plan benefits, exceed the equalization claim as finally determined.)
D) To find out the impact of an equalization claim on the surviving spouse’s rights to property comprising the estate, such as:
- Finding out whether the deceased spouse’s will contained an express provision that the surviving spouse was entitled to the will benefits in addition to his or her equalization claim, FLA, s. 6(5);
- Determining whether any property was held by both spouses as joint tenants (ensuring that the issues of resulting and constructive trust are canvassed), entitling the surviving spouse to claim the property, whether or not an equalization claim is made;
- Determining whether there is a partial or total intestacy with respect to immovable property situated in a jurisdiction other than Ontario. If yes, succession to such property may be governed not by the Succession Law Reform Act (“SLRA”), but by the laws of that other jurisdiction, in which case the surviving spouse may be entitled to that property whether or not an equalization claim is made;
D) Determining the valuation date:
- When a marriage ends in the death of one spouse, the valuation date will usually, though not necessarily, be the day before the death of the deceased spouse. Considering that the valuation date is defined to be the earliest of several specified events, it is clear that if the marital relationship has ended in separation, the date of separation (assuming there is no reasonable prospect of resumption of cohabitation) will be the valuation date, despite the fact that the claim is under s. 5(2) and not s. 5(1), of the FLA; and
- When the valuation date is the date of separation, it would be necessary to consider whether or not the events leading up to the final separation would give rise to some uncertainty over the valuation date.
E) To find out while determining the value of the equalization claim:
- Whether or not it is economically viable to obtain professional valuations for specific property and obtain proper instructions in the matter;
- To review resulting and constructive trust arguments;
- To determine whether there are facts or circumstances which could give rise to a finding of unconscionability, thus justifying an unequal division of NFPs; and
- To check if there have been any fraudulent transfers of property by the deceased spouse to defeat the surviving spouse’s equalization claim.