Equalization – When there is something worse than getting nothing under a Will
A surviving married spouse receives nothing in their late spouse’s Will. They come into your office one week prior to the six month anniversary of their spouses death, and you begin the process of putting together an Application for dependant’s support under Part V of the Succession Law Reform Act. As part of the strategy of how best to proceed, you consider whether the surviving spouse should file an election under section 6(1) of the Family Law Act (the “FLA“) for equalization of net family property. Aware that section 6(10) of the FLA provides that any such election must be filed within 6 months of the date of death, failing which as a result of section 6(11) the surviving spouse will be deemed to have taken under the Will (which is nothing in this instance), you rush to file the election before the six month anniversary of death expires. Surely anything is better than the nothing you think, and your client will be better served by any equalization payment rather than receiving nothing under the Will.
Before you file any election for equalization under the FLA however, careful attention must be paid to the provisions of the FLA, and what impact they may play upon any equalization payment which may be owed. Just because a surviving spouse receives nothing under the Will does not necessarily mean that it will be in their best interest to file an election for equalization under the FLA, as there is a scenario in which they could actually be worse off for having done so.
Section 6(7)(1) of the FLA provides that certain specifically delineated assets listed under section 6(6) of the FLA which may have passed to the surviving spouse upon death (including life insurance policies, pension payments, and jointly held property that passes by right of survivorship) are to be credited against any equalization payment being made to the surviving spouse. Section 6(7)(2) of the FLA then further provides:
“If the total amount of credit under paragraph 1 [i.e. the assets which passed upon death] exceeds the entitlement under section 5 [i.e. the equalization payment], the deceased’s personal representative may recover the excess amount from the surviving spouse.”
Simply put, as a result of section 6(7)(2) of the FLA, in the event the assets listed under section 6(6) of the FLA which passed to the surviving spouse upon death are valued greater than the equalization payment which may be owed to the surviving spouse, the Estate Trustee is entitled to recover any excess amount from the surviving spouse (something which is not available to them had the election not been filed). Hypothetically speaking, if the surviving spouse would have been entitled to a $500,000.00 equalization payment upon death, but also received a $1 million life insurance policy upon the death of their spouse, in the event that the surviving spouse files an election for equalization under the FLA, the Estate Trustee would be entitled to recover $500,000.00 from the surviving spouse, such that the surviving spouse would be $500,000.00 worse off than if no election had been filed at all.
As a result of section 6(7)(2) of the FLA, there is something worse than getting nothing under a Will. Before any election is filed for equalization under the FLA, you must be sure that it is in the best interest for the surviving spouse to do so. In the event that such a determination cannot be reached before the six month anniversary of the spouse’s death, an extension from the court to file the election should be sought.
Thank you for reading.