A recent decision of the Ontario Superior Court of Justice highlights the importance of preserving a surviving married spouse’s ability to elect for an equalization of net family properties within the six-month limitation period.
Upon death, a surviving married spouse in Ontario can elect for an equalization of net family properties under Sections 5 and 6 of the Family Law Act instead of taking under the predeceasing spouse’s will or, if the spouse has not left a will, on intestacy. Subsections 6(10), 6(11), and 7(3)(c) of the Family Law Act provide that the surviving spouse must ordinarily make an election within six months of date of death and not after that date. The Court may, however, extend the election deadline in the event that: (a) there are apparent grounds for relief; (b) relief is unavailable because of delay that has been incurred in good faith; and, (c) no person will suffer substantial prejudice by reason of the delay (subsection 2(8) of the Family Law Act).
Courts have reviewed the circumstances in which an extension is typically ordered. The requirement that the delay be incurred in good faith has been interpreted as meaning that the party has acted honestly and with no ulterior motive (see, for example, Busch v Amos, 1994 CanLII 7454 (ONSC)).
In Mihalcin v Templeman, 2018 ONSC 5385, a surviving spouse had commenced two claims with respect to the estate of her late husband and an inter vivos gift made to a live-in caregiver. However, neither of the proceedings had sought any relief relating to an equalization of net family properties, nor did the wife take any steps to make an election or to extend the time within which she was permitted to do so. The Court reviewed whether the delay in making the election was in good faith. The evidence regarding the reasons for the delay in electing for equalization were considered to be vague and insufficient to satisfy the evidentiary burden that the delay was incurred in good faith. Accordingly, the applicant was not permitted to amend her pleadings to incorporate this relief.
Justice Bruce Fitzpatrick commented as follows with respect to the importance of limitation periods, generally (at para 48):
I am mindful of the general importance of limitation periods for the conduct of litigation. There is an obligation on parties to put forward all known legitimate claims within certain time limits. In this case, the time limit was relatively short. I think it cannot be readily ignored. The evidentiary record is not sufficient for me to say that justice requires me to exercise my discretion in favour of allowing [the applicant] to amend her claim so as to include a claim for equalization in all of the circumstances.
Where an equalization of net family properties may be sought at a later time (for example, pending the outcome of a will challenge or dependant’s support application), it is prudent to seek an extension well before the expiry of the six-month limitation period as courts may or may not assist a surviving spouse in seeking this relief down the road, if and when it may become advisable.
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Other blog entries/podcasts that may be of interest:
- When is it Appropriate to Extend the Time Granted in Favour of Equalization Under the Family Law Act?
- Equalization Claims and Unequal Division of the Net Family Property
- Family Law Equalization Claims and Bankruptcy
- Consolidation of Family Law Act and Dependant Support Claims
When is it Appropriate to Extend the Time Granted in Favour of Equalization under the Family Law Act?
Applications for an extension of time (beyond six months from date of death) to elect under the Family Law Act (“FLA”) are regularly brought before the Court. Decisions with respect to that are often dealt with by way of short endorsements.
Justice Dunphy, in Aquilina v Aquilina, 2018 ONSC 3607, a recent court decision, made some interesting comments regarding applications for an extension of time in such circumstances.
The Deceased passed away in December, 2017, leaving the Applicant (his wife) and their three adult children. The Applicant was primarily a homemaker and as such, her level of information regarding the family financial affairs was imprecise. The Estate was not a simple one to administer, in part due to a number of business interests the Deceased had in the family’s native country, Malta, held through various corporations, real estate holdings and an active business.
At the time of the hearing, the Estate did not have an administrator. It was determined that the Deceased did not leave a Will.
The Applicant in this matter had two options – making a claim under the Succession Law Reform Act (“SLRA”) or the FLA.
Under the SLRA, in the event of an intestacy, the beneficiaries of the Deceased’s estate are the Applicant and their three adult children. Under s. 46(2) of the SLRA, where there is no Will and there is more than one child of the Deceased, the surviving spouse is entitled to 1/3 of the Estate plus the “preferential share” prescribed by s. 45 of the SLRA.
In contrast, s. 5(2) of the FLA provides that the surviving spouse will receive 1/2 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 Applicant has a period of six months from the date of death to make the election as per s. 6(10) of the FLA. Absent an election, the surviving spouse takes under the SLRA.
Criteria for Extension
The Applicant requested that the court: (i) extend the time to make an election until two years from the date of the application; (ii) extend the time for the deemed election to the same date; and (iii) extend the time during which distributions from the Estate are suspended until the same date.
In making a finding, the Court must consider:
- Whether there are apparent grounds for relief;
- Whether delay, if any, was incurred in good faith; and
- Whether anyone will be substantially prejudiced by the delay.
It is important to note, that the surviving spouse does not have to have precise and accurate information but that he or she must have sufficient information to make an informed choice. Justice Dunphy noted that extensions are intended to be the exception and not the rule.
Analysis and Decision
Justice Dunphy held that it was going to take a period of time – very likely a year or more – to be able to gather the facts necessary to understand the value of this Estate and the Applicant’s intersecting interests within (meaning the consequences flowing from her different roles as a shareholder, widow and spouse). Therefore, Justice Dunphy held that there are some grounds for relief in the circumstances of this case.
In considering whether there was any delay that was not incurred in good faith, though Justice Dunphy noted that the Application was brought very close to the six month anniversary of the Deceased’s date of death, he placed weight on the fact that the death was “sudden, unexpected and shocking” and the relative complexity of the Estate. He held that the delay was incurred in good faith.
Justice Dunphy found that there would be no substantial prejudice in this case if an election was granted because the only other beneficiaries of the Estate are the three adult children of the Deceased and the Applicant, who confirmed that they did not oppose the motion. He did balance against that finding, however, the inherent prejudice in having all or a substantial portion of the Estate frozen. In making this consideration, Justice Dunphy found that any prejudice in this matter was slight.
Based on the facts, Justice Dunphy held that more time would be required to consider the rights of the Applicant, as the surviving spouse, under the SLRA as compared to the FLA. As such, he granted the Applicant all the relief sought, but reduced it to one year from the date of the Application instead of the two years that the Applicant was seeking.
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Under the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”), section 6(1), when a spouse dies leaving a will, the surviving spouse can elect to take their entitlement under the will, or to receive their entitlement pursuant to an equalization of net family property pursuant to section 5 of the FLA. If a surviving spouse wishes to make an election for an equalization payment, they must file such election within six months after the deceased spouse’s death in accordance with s. 6(10) of the FLA, and if they do not do so within the prescribed time, pursuant to s. 6(11), the surviving spouse is deemed to elect to take under the will.
Pursuant to section 2(8) of the FLA, the court may extend the time prescribed by the FLA, in this case being six months after the date of death, if it is satisfied that,
(a) there are apparent grounds for relief;
(b) relief is unavailable because of delay that has been incurred in good faith; and
(c) no person will suffer substantial prejudice by reason of the delay.
In Lundy v Lundy Estate, 2017 ONSC 2101, a recent Ontario decision, the court considered a motion by a surviving spouse to extend the limitation period for an equalization election under the FLA. The spouse’s husband (the “Deceased”) died on June 29, 2015. Accordingly, the spouse would have had to make her FLA election by December 29, 2015. The motion in question was not brought until January 2017. The Deceased’s son, the residual beneficiary of the Deceased’s estate (the “Estate”) opposed the relief sought by the spouse.
The spouse claimed that she had not been provided with timely or complete information regarding the value of the Estate as at the dates of marriage and death, which is required in order to calculate a possible equalization payment. She claimed that she did not have a complete picture of the assets of the Estate until July 2016, and that she still needed valuation information regarding the Deceased’s company.
On the other hand, the son claimed that the spouse was aware of the Estate assets, as she was the named co-estate trustee of the Estate, along with the son, and was also in possession of the Deceased’s financial records. There was evidence that the spouse had accepted her role as co-estate trustee, accepted bequests made to her under the Deceased’s will, and had not expressed any intention of making an equalization claim or seeking an extension to make such a claim. Furthermore, there was evidence of an email from the spouse’s son from October 2015 in which he provided his preliminary estimate of the market value of the Estate assets and expected tax liability, indicating that the spouse did have some information regarding the size of the Estate and her share of it.
The court in this case dismissed the spouse’s motion for an extension, concluding that the spouse did not show that her delay in bringing the motion was incurred in good faith. The court held that the spouse did not explain why she failed to assert a claim or failed to seek an extension of the FLA limitation periods if she believed she needed further time and information in order to investigate and evaluate her FLA claim. In denying the extension sought by the spouse, however, the court noted that doing so would not leave the spouse without any remedy, as she may still be able to pursue a claim for dependant’s support under the Succession Law Reform Act, R.S.O 1990, c. S.26.
The decision in Lundy Estate v Lundy provides a reminder to surviving spouses to act quickly and diligently with respect to their entitlement to their deceased spouse’s estate, and any potential claims they may have in this regard. It is advisable for a surviving spouse to seek advice from a trusted legal professional to ensure that they are aware of their rights, assert them within the applicable limitation period, and do not lose the opportunity to pursue any potential claims.
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Just over a week ago, the Canadian Immigration and Citizenship website crashed following the conclusion of the U.S. presidential election. After hearing about this, I started to wonder, how difficult would it really be for Americans who are dissatisfied with the outcome of the recent election to flee to Canada?
Aside from entering the country on a student or work visa, certain individuals wishing to immigrate to Canada may apply for Express Entry as a skilled worker, caregiver, or a refugee. Americans with family in Canada may also be able to apply directly for immigration to a province through the Provincial Nominee Program.
Individuals qualifying for immigration to Canada who may be considering doing so should not neglect cross-border tax and estate planning issues that may result from their relocation before proceeding with such a move.
When moving from one jurisdiction to another, it is important that one takes extra steps to ensure that elements of existing incapacity and/or estate plans will be recognized in his or her new home.
If new Canadian residents own assets cross-border, it may result in difficulty in administering property during incapacity and/or following death. It is important that fiduciaries are chosen appropriately, so as to facilitate their access to assets in the relevant jurisdiction, without triggering cross-border tax issues and issues of inaccessibility. Depending on the jurisdiction, taxes may be payable with respect to foreign assets based on citizenship, residence, location of the individual or his or her assets, domicile, or any combination of these factors.
It is also important to remember that simply immigrating to Canada may not exempt U.S. citizens from the payment of American inheritance tax. As my colleague, Noah Weisberg, blogged last month, President Elect Trump has vowed to abolish inheritance tax altogether. However, Mr. Trump has proposed to replace current U.S. inheritance tax with what is being referred to as a capital gains tax that applies to assets of certain estates valued at $10 million or greater. At this point in time, it remains unclear which of the policies upon which the incumbent president’s campaign was based will ultimately be implemented.
Have a great weekend.
Listen to Alter Ego Trusts.
This week on Hull on Estates, Natalia and Chris discuss what Alter Ego Trusts are and the pros and cons of using Alter Ego Trusts.
Does the Court have jurisdiction to set aside a Family Law Act election, or is such an election irrevocable?
This question was recently considered in the Ontario Superior Court of Justice decision of Iasenza v. Iasenza Estate 2007 CanLII 23351.
As background, Ontario’s Family Law Act (“FLA”) allows a surviving spouse to elect to either receive benefit under the deceased’s will (or on an intestacy if there is no will), or receive an equalization of net family property under the FLA. Normally, the surviving spouse seeks information regarding each of the options, and then elects for the greater benefit.
However, information regarding the values of each option is not always forthcoming in a timely fashion. The election must be filed within 6 months of the date of death, or the surviving spouse is deemed to elect to take under the will or on an intestacy.
The Court held that it did have discretion to set aside an election made in favour of an equalization. However, the Court noted that the discretion will be exercised sparingly and only in “restrictive circumstances where the interests of justice require it and where the balance of the interests of effected parties clearly warrants it.”
In considering whether to exercise its discretion, the Court will consider:
a. Was the election filed as a result of a material mistake of fact or law made in good faith?
b. Was there any responsibility or culpability on the part of the effected parties in relation to the election?
c. Was the notice of intent to seek revocation of the election given in a timely way, and in particular, how long after the 6 month filing period was notice given?
d. Has the estate been distributed or would interested parties otherwise be adversely effected?
e. Does the election result in an injustice to the surviving spouse in all of the circumstances?
On the particular facts of Iasenza, the Court decided to exercise its discretion and set aside the election filed by the surviving spouse. As a result, the spouse was entitled to receive 1/3 of the estate under the will, whereas she would have received nothing under the election.
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