When a spouse dies, individuals are often left unsure of their rights. Whether there is a Will and you have been left with nothing, or there was no Will and you need to ensure that you get what you deserve, there is legislation in place to protect you.
1. What happens if your spouse dies with a Will?
Section 5 of the Family Law Act, states that when a spouse dies, the surviving spouse is entitled to an Equalization of the net family property. The practical effect of this is that the surviving spouse gets the share that they would have been entitled to if they had gotten divorced rather than if one spouse had died.
Section 6(1) of the Family Law Act presents the surviving spouse with a choice: where there is a Will, the surviving spouse can either take what they are given in the Will or decide to take what they are entitled to under Section 5 of the Family Law Act.
2. What happens if your spouse dies without a Will?
When a spouse dies without a Will, Part II of the Succession Law Reform Act states what a spouse is entitled to receive: a surviving spouse is entitled to receive the first $200,000.00 of the estate, this is called the “Preferential Share” of the Estate. In addition to the Preferential Share, the surviving spouse is entitled to the following:
- If 1 child: one-half of what is remaining after the Preferential Share (i.e. the “Residue”); and
- If 2 or more children: one-third of the Residue
Section 6(2) again leaves the surviving spouse with a choice: where there is no Will the surviving spouse can either:
- Elect to Equalize the net family property; or
- Elect to take the Preferential Share plus their portion of the Residue.
3. Considerations for Common Law Spouses
It is important to note that this is not available to Common Law couples. As such Common Law couples should:
- Make sure they have a Will in place; and/or
- Sign a Cohabitation Agreement, which will specify how property will be dealt with in the event of the death of one spouse, and what the couple agrees will not happen.
4. Considerations for Separated Spouses
Furthermore, the above-mentioned elections are still applicable if the spouses have been separated for a length of time. As such it is important to either:
- Get a legally binding Divorce, or
- a legally binding Separation Agreement.
To find out more about how to protect yourself or your spouse contact us by phone at 905-471-6161 or email us at email@example.com.
What is Probate?
To put it in the simplest terms, Probate is the Court Process by which a Will is authenticated, and through it an executor is issue a “Certificate of Appointment of Estate Trustee with a Will”. This certificate gives the executor the authority to act on behalf of the estate.
It is essentially an approval process that checks to determine whether your Will is valid and confirms the appointment of the Estate Trustee that you have chosen. Without a Certificate of Appointment, the Estate Trustee may run into issues when they attempt to transfer the assets as per your instructions on the Will.
Why does this matter to me?
It is likely that you stumbled across this blog specifically searching for the word “Probate”. This process is important for the Estate Trustee of an Estate, as well as individuals completing or revising their Will for effective tax planning purposes. Understanding the process of probate will go a long way in allowing the beneficiaries of your Estate to inherit a more valuable estate.
There is a cost associated with probating a Will. This is called the Estate Administration Tax in Ontario, also sometimes lovingly referred to as “Probate Fees”. It is important to note that Estate Administration Tax and income tax is not the same thing. Upon death, the executor of the Will is responsible for accurately reporting your assets for Estates Administration Tax and Income Tax purposes. While this article may touch upon Income Tax issues, the information presented here is focused on the Estate Administration Tax.
With regards to the Estate Administration Tax, the current rates in Ontario are:
- $5 for each $1,000, or part thereof, of the first $50,000 of the value of the estate, and
- $15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000.
There is no Estate Administration Tax due if the total value of the estate is less than $1,000.
You can find a handy Estates Administration Tax calculator here: https://www.attorneygeneral.jus.gov.on.ca/english/estates/calculate.php
Can I avoid paying the fees?
While it is unlikely that you can avoid paying Estate Administration Tax completely, you can minimize Estate Administration Tax by carefully planning how you want to distribute your assets. This is because not all of your assets necessarily need to go through the probate process.
Obviously, a commercial bank will not transfer your entire life savings without some sort of assurance that the Executor of the Estate is who they say they are. However, less valuable assets, such as your vehicle, may be transferable without a Certificate of Appointment to your executor through Service Ontario.
Listed below are some of the ways you can try to minimize Estate Administration Tax. It is important to know that the methods as described below carry significant legal consequences, so we highly recommend you speak to a lawyer before attempting to do this yourself.
- Name beneficiaries in your Life Insurance Plan and/or Registered Accounts.
If you name a beneficiary for your life insurance plan or registered savings plans such as RRIFs or RRSPs, it is possible to bypass probate by directly passing the assets in those plans to your beneficiaries. While your beneficiaries will still be responsible to accurately report the amount for Income Tax purposes, this will allow you to avoid the Estate Administration Tax.
- Joint Ownership of Assets
If the title to a specific asset is jointly owned by you and someone else, such as your spouse, the survivor will automatically receive the title of the asset upon your death. This allows you to bypass probate, as the survivor will have full ownership of the specific asset, and there is no need to prove their right of ownership.
In some provinces, like Ontario, it is possible to have more than one Will. How this usually works is that one Will can be used to distribute assets that will require probate, and the second Will can be used to distribute assets that does not require probate. It is important that the Will is carefully worded so that the there are no conflicts between the two Wills.
This method has been tested in court. In Granovesky Estate v. Ontario, the deceased left two Wills: a Primary Will to deal with assets that required probate, and a Secondary Will to deal with assets that did not require probate.
The court decided that there was no prohibition against asking the court for a limited grant of a Certificate of Appointment on the Primary Will (and all the assets included in it). Furthermore, there was no requirement for the Estate Trustee to submit the deceased’s secondary Will to probate or to pay Probate Fees (as it was called then) on the value of assets listed on the Secondary Will.
If you wish, you can set up a private company or trust to own your assets to avoid the probate process. This is commonly used for Income Tax planning purposes for large estates to minimize the Income Tax paid on the Estate. As this gets fairly complex, we recommend you speak to your lawyer about the costs associated with creating a trust or company. The costs associated with this method may be more than the Estate Administration Tax itself, so avoiding the Estate Administration Tax should not be your sole reason to set up a private company or trust for your Estate.
Every Estate is unique, and different methods will work better for different individuals. Erudite Law can guide you through the probate process and work with you to discover the right plan, allowing you to leave a more valuable estate for your loved ones.
For more information with regards to probating a will, or Wills and Estates in general, please do not hesitate to reach out to us by phone at 905-471-6161 or email us at firstname.lastname@example.org.