New wills legislation planned for Alberta could throw careful plans for passing family businesses on to the next generation into doubt.
The Wills and Succession Act is set to come into force on Feb. 1, 2012 and new provisions around the entitlement of surviving spouses could mean that in some cases a spouse ends up with so much of the estate that a business cannot continue.
Like many other jurisdictions, including Ontario and Manitoba, the new law will give a deceased person’s husband or wife the right to make a claim for division of property under the family law legislation; that is, a claim for what he or she would have been entitled to had they divorced.
The specifics vary, but this typically amounts to an equal share in property acquired over the course of the marriage.
In Ontario, for instance, a surviving spouse can elect either to claim their share of the matrimonial property or simply take whatever their spouse left to them in his or her will. In Alberta, on the other hand, the new legislation will give surviving spouses the right to both.
Some estates and family law lawyers in the province are warning this could disrupt careful estate planning as surviving spouses end up with far more than what the deceased person intended while other beneficiaries get short shrift.
“It would not be such a problem if we were allowed an election – as Ontario has – in [that case], you would get your share of matrimonial property or you would get what’s left to you under the will or on intestacy, but you wouldn’t get both,” says Patricia Daunais, a partner at Daunais McKay Harms & Jones LLP in Calgary, who has practiced family and estate law in Alberta since 1975.
She says she has particular concerns for farmers, ranchers and business people who have arranged for their children to inherit their business assets and left other property to their husbands or wives.
With the entitlement to claim both matrimonial property as well as whatever gifts were left under the will, Ms. Daunais says that will sometimes leave little or nothing for other beneficiaries, like adult children intended to inherit and take over businesses, which may have to be sold.
“Sometimes it wipes out the entire estate,” she says.
Calgary lawyer Aaron Bickman, who co-chairs the wills & trusts section of the Alberta south branch of the Canadian Bar Association, expects the new legislation to create more uncertainty in the area of estate law.
“This will foster litigation,” he says, noting that it will also make advance estate planning more complicated and costly, potentially demanding the involvement of more than one lawyer as well as accounting professionals.
“The more cynical among us have said, ‘Well bring it on. I’m ordering my new Maserati,’” Ms. Daunais says, referring to the potential boon in legal fees the change could bring.
The changes that affect the rights of surviving spouses are part of a larger overhaul to wills and estates law that has been underway in Alberta for about five years, culminating in the consolidation of several different acts into the Wills and Succession Act.
Averie McNary, director of legislative reform in the department of justice, led a team that developed the legislation, which also makes changes to the Matrimonial Property Act.
Ms. McNary says the rationale for changes with respect to spouses came out of a 2000 report by the Alberta Law Reform Institute. The report looked at the presumption – applied in cases of divorce – of equal sharing of assets acquired during a marriage. It also considered the principle enshrined in Tataryn v. Tataryn, a 1994 ruling by the Supreme Court of Canada, that a deceased person’s spouse should be left in no worse a position than they would have been had the couple separated prior to the death.
This is the same reasoning behind the election option offered under Ontario estate law and Albertans can already make a claim for their fair share under dependants’ relief legislation.
As for where the new Alberta Act goes further than that, Ms. McNary says it starts from the presumption that a deceased spouse is expected to want their survivor to have their share of the matrimonial property as well as a gift from the deceased person’s property, if one is made.
“It doesn’t say the deceased person has to leave them a gift,” she says. “It is to say that if there is a gift in the will, the law will assume that the surviving spouse is intended to receive that as well.”
Ms. McNary admits that the changes in this respect, which will apply to all deaths on or after Feb. 1, 2012, could disrupt previous estate plans. But she says, particularly for individuals with high net worth or complicated assets like a business, regular review of estate plans is essential in any case, as tax law or family situations for example can change.
“Even mom and pop businesses need to plan and need to check their plans from time to time,” she says.
Ms. McNary does not expect the new legislation to stir up any more than the usual level of strife in estate law, which, she notes, some people say is “family law for dead people.”
“It might give people a new place to fight if they’re intending on fighting, but I don’t think it’s going to create any more anguish or conflict than what has already existed in this area,” she says.
Ms. Daunais says she and other estates practitioners became aware of the specific change during a conference in late April and have been lobbying the justice department for amendments since then, without success.
Ms. McNary says some “housekeeping” amendments to the legislation were introduced in the legislature last week, but no substantial policy changes were made, nor are any expected. She says the justice minister has been approached on the issue directly but there have been no announcements of any amendments on this point.
For now, Ms. Daunais says she plans to continue speaking to groups of lawyers to make as many of her colleagues aware of the pending changes as possible.
