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Family Law Act Disclosure Obligations for Estate Trustees

Acting as an estate trustee can be an involved and lengthy affair in some circumstances, especially if the estate is faced with litigation or an ongoing dispute. Family Law Act (“FLA”) claims by a surviving spouse pose unique challenges for an Estate Trustee.

Family Law Act (FLA) Elections

Under the FLA, the surviving married spouse is entitled to an equalization of net family property calculated in the same way as if the spouses had separated. That surviving spouse has the statutory right to decide to accept the bequests under the deceased’s will (or under the intestacy provisions of the Succession Law Reform Act (SLRA) if there is no will) or accept an equalization of net family property in accordance with the scheme under Part 1 of the FLA.

Section 4 of the FLA defines “net family property” (“NFP”) and “property” as follows:

“net family property” means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting,

(a)   the spouse’s debts and other liabilities, and

(b) the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse’s debts and other liabilities, other than debts or liabilities related directly to the acquisition or significant improvement of a matrimonial home, calculated as of the date of the marriage;

“property” means any interest, present or future, vested or contingent, in real or personal property and includes,

(a)  property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself,

(b)  property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property, and

(c) in the case of a spouse’s rights under a pension plan, the imputed value, for family law purposes, of the spouse’s interest in the plan, as determined in accordance with section 10.1, for the period beginning with the date of the marriage and ending on the valuation date;

Excluded property is defined in section 4(2) of the FLA as follows:

(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:

  1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
  2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
  3. Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.
  4. Proceeds or a right to proceeds of a policy of life insurance, as defined under the Insurance Act, that are payable on the death of the life insured.
  5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
  6. Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.
  7. Unadjusted pensionable earnings under the Canada Pension Plan.  R.S.O. 1990, c. F.3, s. 4 (2); 2004, c. 31, Sched. 38, s. 2 (1); 2009, c. 11, s. 22 (5).

This is obviously a complex calculation process. The problem for an Estate Trustee is that the surviving spouse is required to elect within six months of the date of death. If the surviving spouse does not elect within the six month period, he or she will be deemed to take under the will (or SLRA).

In order to make an informed decision, the surviving spouse must receive disclosure of the estate assets and debts, and for FLA purposes, disclosure of the deceased’s assets and debts as of the date of marriage. It is the obligation of the Estate Trustee to provide this disclosure to the surviving spouse.

This disclosure obligation requires an identification and valuation of the assets and debts together with best evidence supporting documentation, including appraisals and possibly business valuations. In the case of old accounts, private corporations or since disposed of assets this obligations can be onerous, time consuming and costly. In complex family law cases the disclosure exchange process for FLA purposes can take many months, if not years.

Unless the estate is typical husband & wife will situation, the Estate Trustee must commence the task of asset and debt identification for the date of marriage and death at the earliest possible juncture. The six month time period for election can be extended by way of a motion under section 2 (8) of the FLA. That motion must be brought by the surviving spouse and should be consented to by the Estate Trustee unless all required financial disclosure has been provided well before the six month deadline. The principles for granting the extension are set out in Aquilina v. Aquilina , 2018 ONSC 3607 (CanLII).

It is critical for counsel for the Estate Trustee to inquire if there are any Domestic Contracts in existence between the deceased and the surviving spouse. The Domestic Contract likely does not eliminate the requirement to disclose but advice should be taken from an experienced family law lawyer on this question.

In the event that the surviving spouse is an Estate Trustee, independent counsel should be retained and resignation (or renunciation) should occur due to the obvious conflict.

Rule 13 of the Family Law Rules specify the mandatory financial disclosure requirements for equalization cases. Although not binding on Estate Court matters, these rules serve as a useful guide for NFP disclosure. In particular, Rule 13 (3.3) requires the following preliminary information to be supplied to the other party:

  1. The statement issued closest to the valuation date for each bank account or other account in a financial institution, pension, registered retirement or other savings plan, and any other savings or investments in which the party had an interest on that date.
  2. A copy of an application or request made by the party to obtain a valuation of his or her own pension benefits, deferred pension or pension, as the case may be, if any, as of the valuation date.
  3. A copy of the Municipal Property Assessment Corporation’s assessment of any real property in Ontario in which the party had a right or interest on the valuation date, for the year in which that date occurred.
  4. If the party owned a life insurance policy on the valuation date, the statement issued closest to that date showing the face amount and cash surrender value, if any, of the policy, and the named beneficiary.
  5. If the party had an interest in a sole proprietorship or was self-employed on the valuation date, for each of the three years preceding that date,
    1. the financial statements of the party’s business or professional practice, other than a partnership, and
    2. a copy of every personal income tax return filed by the party, including any materials that were filed with the return.
  6. If the party was a partner in a partnership on the valuation date, a copy of the partnership agreement and, for each of the three years preceding the valuation date,
    1. a copy of every personal income tax return filed by the party, including any materials that were filed with the return, and
    2. the financial statements of the partnership.
  7. If the party had an interest in a corporation on the valuation date, documentation showing the number and types of shares of the corporation and any other interests in the corporation that were owned by the party on that date.
  8. If the corporation in which a party had an interest was privately held, for each of the three years preceding the valuation date,
    1. the financial statements for the corporation and its subsidiaries, and
    2. if the interest was a majority interest, a copy of every income tax return filed by the corporation.
  9. If the party was a beneficiary under a trust on the valuation date, a copy of the trust settlement agreement and the trust’s financial statements for each of the three years preceding that date.
  10. Documentation showing the value, on the valuation date, of any property not referred to in paragraphs 1 to 9 in which the party had an interest on that date.
  11. Documentation that supports a claim, if any, for an exclusion under subsection 4 (2) of the Family Law Act.
  12. The statements or invoices issued closest to the valuation date in relation to any mortgage, line of credit, credit card balance or other debt owed by the party on that date.
  13. Any available documentation showing the value, on the date of marriage, of property that the party owned or in which he or she had an interest on that date, and the amount of any debts owed by the party on that date. O. Reg. 69/15, s. 3 (2).

Estate administration lawyers are strongly encouraged to retain an experienced family law lawyer to provide advice with respect to the disclosure obligations and calculation of net family property in these situations.

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