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ESTATES & INTESTACY: Spousal statutory rights when there is no Will

Continuing the discussion of the effects of a Family Law election on various aspects of estate administration; its effect on intestacy is now reviewed.

Effect on Intestacy

In an intestacy (where a spouse dies without a will), either partial or total, the election in favour of an equalization claim (FLA, subsection 6(9)) will result in the surviving spouse’s forfeiture of his or her entitlement under Part II of the Succession Law Reform Act (“SLRA”). In a partial intestacy, even when the will states that the benefits under the will are to be in addition to the surviving spouse’s equalization claim, that statement would not prevent the latter’s forfeiture of entitlement under Part II of the SLRA for the other part of the estate that is under intestacy.

In intestacy, the SLRA has no control over a surviving spouse’s entitlement to property situated outside Ontario. Succession to immovable property as dictated by conflict of laws rules is under the law of the situs (position or site).  So, unless the laws of the jurisdiction in which immovable property is situate require that Ontario law be applied (i.e. the SLRA), the surviving spouse who elects in favour of an equalization claim can get the assets located outside Ontario. This is a glaringly unfair, and probably an unintended result, caused because the Net Family Property (“NFP”) of the deceased spouse is calculated on the basis of his or her worldwide assets.

Effect on Dependant’s Relief Claims

A surviving spouse electing to make an equalization claim does not forfeit any entitlement under Part V of the SLRA (dependant’s relief provisions).  Expectedly, any claim for support under Part V of the SLRA will be heard after the equalization claim is settled. There is also the interesting interrelationship between Part V of the SLRA and Part I of the FLA. As a pre-condition of a dependant’s entitlement to support, section 58 of the SLRA requires that the deceased spouse, whether dying testate or intestate, had not made adequate provision for the claiming dependant.

As an example, consider a deceased spouse who has bequeathed a life interest in the whole of his or her estate to the surviving spouse. Despite it, the surviving spouse opted for an equalization payment, with the result that he or she receives nothing under the will. In that event, when the surviving spouse has, by his or her own hand, forfeited the life interest, can it fairly be said that the deceased spouse did not make adequate provision for the surviving spouse?

The issue is different when the surviving spouse’s equalization claim is substantially in excess of his or her entitlement under the will. There, once the equalization payment is determined, it is unlikely that a court would make any award under Part V of the SLRA. If, however, when a surviving spouse’s election to make an equalization claim turns out to be a serious mistake, the Part V claim could be contested on this basis. Also, there is subsection 58(4) of the SLRA proclaiming:

“The adequacy of provision for support . . . shall be determined as of the date of hearing of the application.”

Therefore, it would be in order to conclude that the forfeiture of any will entitlement that flows from the election in favour of equalization is to be ignored.

Effect on Insurance, Pension or Similar Plan Benefits

There are other adverse consequences to the surviving spouse, which the election to make an equalization claim will lead to. Unless the deceased spouse has designated otherwise in writing, such an election will require the surviving spouse to set off against the equalization claim any benefits to which he or she is entitled as a named beneficiary of:

1) The proceeds of any policy of insurance owned by the deceased spouse on his or her life, as well as the proceeds of any group policy under which the deceased spouse is a member; and

2) A lump sum payment provided for under a pension or similar plan on the death of the deceased spouse, FLA, s. 6(6).

If these benefits have already been received by the surviving spouse and the total is in excess of the equalization claim, the estate of the deceased spouse can sue for the recovery of the excess, FLA, s. 6(7).

Priority of Equalization Claim

With regard to priority, the equalization claim is ahead of:

1) Gifts made under the will, unless it is otherwise paid for;

2) A person’s right to a share of the estate under Part II of the SLRA; and

3) Orders made against the estate under Part V of the SLRA, except orders in favour of a child of the deceased spouse, FLA, s. 6(12). Gifts under a will, made in accordance with a contract entered into by the deceased spouse in good faith and for valuable consideration, will take priority over the equalization claim, except to the extent that the value of the gift, in the court’s opinion, exceeds the consideration,  FLA, s. 6(13). Though the value of the gift is determined at the time of the deceased spouse’s death, it is up to the court to value the consideration as of the time the bargain was made.

Computation of the surviving spouse’s claim requires the deduction of the debts and liabilities of the deceased spouse at the valuation date (one day before death). Even then, the equalization claim does not necessarily stand behind all of those debts and liabilities. Probably, the claim ranks behind those of any secured creditors and those that are preferred by law. Its position in relation to the claims of unsecured creditors is uncertain.

For all your Family Law matters and how best to resolve your estate and succession issues or that with a spouse contact the lawyers at Levy Zavet PC (Levy Zavet).

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