In Ontario, a surviving married spouse (not a common law spouse) may elect to either: (i) receive their entitlement as a beneficiary under the terms of the will of their deceased spouse or (ii) receive an alternative entitlement under section 5(2) of the Family Law Act (“FLA”).
Section (5)2 of the FLA states:
When a spouse dies, if the net family property of the deceased spouse exceeds the net family property of the surviving spouse, the surviving spouse is entitled of one-half of the difference between them.
Therefore, if electing to take under the FLA, the surviving spouse will receive one half of the difference between the value of the net family property of each of the spouses where the deceased had the higher of the two amounts. The valuation date, for this purpose, will be the date before the date on which one of the spouses dies leaving the other spouse surviving.
If the surviving spouse choses to receive their entitlement under section 5(2) FLA, they must file their election in the office of the Estate Registrar for Ontario no later than six months from the day of death of the first spouse. If they do not file an election within the prescribed period, the surviving spouse will be deemed to have elected to take their entitlement under the deceased’s will.
You can read more about when it might be appropriate to extend the time granted in favour of equalization under the FLA here.
It is important to note that an election alone does not automatically entitle the surviving spouse to the equalization of net family property: an application must also be filed in accordance with section 7(1) FLA. This application is also subject to the limitation period noted above.
Pursuant to section 6(8) of the FLA, an election under section 5 will revoke any bequests made to the surviving spouse by the deceased, and the will is to be interpreted as if the surviving spouse had died before the deceased. However, if the will expressly provides that any gifts are in addition to the entitlement under section 5 of the FLA, then the surviving spouse may still be entitled to these gifts.
The division of net family property is treated as an equitable calculation between the two spouses. Certain payments will be credited against the surviving spouse’s entitlement under s. 5 of the FLA. Section 6(7) FLA offers guidance to that effect.
There are various liabilities which may apply to the deceased spouse’s net family property as well. It is appropriate to deduct foreseeable liabilities that arise on the date of death. For example, in Bobyk v. Bobyk Estate, it was held that tax payable on capital gains resulting from the deemed disposition of RRSPs was to be deducted form the deceased’s net family property.
When considering an election under section 5 FLA, it is important to ascertain all liabilities which may impact the net family property value. The filing of respective tax returns can be one of the steps in doing so. With the 2022 tax season quickly approaching, you, or an estate you are responsible for, should review the Canada Revenue Agency due dates for 2021 tax returns for individuals and terminal tax returns for deceased tax payers.
Thank you for reading.