BY: VALERIE DYE
It is known that an Estate Trustee becomes liable for the debts of the deceased if the assets are distributed to beneficiaries before paying off the debts. Apart from ensuring that debts are paid off, Estate Trustees need to be aware of the rights of a surviving spouse in relation to the assets of the deceased’s estate.
Section 5 (2) of the Family Law Act provides as follows:
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 to one half of the difference between them.
In family law, this process is referred to as ‘equalization’. Equalization of net family assets takes place when spouses divorce but the Family Law Act also allows the process of equalization to take place after death if the surviving spouse elects to do so.
Upon the death of one spouse, the surviving spouse has a choice of either taking gifts left to that spouse under the will (or through intestacy) or taking the benefits through equalization. Naturally, a spouse who receives a gift under a will cannot take the gift and still make a claim for equalization. How does this affect the role of the Estate Trustee in administering the estate of a deceased spouse?
Estate Trustees need to be aware that under Section 6 (12) of the Family Law Act an equalization claim has priority over any gifts made under the will or any rights under intestacy. Equalization claims also have priority over any orders made for dependants’ support from the estate unless such support is for a child of the deceased.
Further, the Estate Trustee also needs to be aware that the surviving spouse has six months within which to make an election either to take a benefit under a will or intestacy or to take a benefit under equalization. As a consequence, where a deceased leaves a surviving spouse, the Estate Trustee should not make distributions to beneficiaries before the expiration of the six-month period unless the surviving spouse gives written consent or unless a court so orders. It should be noted, however, that Section 6 (17) of the Family Law Act allows the Estate Trustee to make reasonable advances to dependants who are in need of support.
The courts may, and often do extend the time given to the spouse to make an election. Where this happens, unless the Estate Trustee receives notice of such an extension he may not be liable for any distributions made after the expiration of the six-month period.
Once the Estate Trustee has received notice that the spouse has made an application for equalization no distributions should be made out of the estate until the equalization process is completed.
It is important for Estate Trustees to be aware of these provisions of the Family Law Act in order to avoid liability. Once there is a surviving spouse Estate Trustees should not be in a haste to distribute assets. The case of Slaven v Williams et. al 2011 ONSC provides an example of successful litigation filed against Estate Trustees who distributed assets of the estate despite knowledge that the surviving spouse had made an election to make a claim for equalization. In that case, the Estate Trustees had to give an account of all their dealings with the estate.
