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The Preferential Share on an Intestacy: Time for an Update

On an intestacy (when a person dies without a will), each Canadian province and territory provides for a mandatory scheme to distribute the deceased’s property, which is typically between the testator’s surviving spouse and children, if any, and alternately to other relatives.

Some provinces and territories provide a spouse with a “preferential share” prior to dividing the rest of the estate between the spouse and children. For example, in Ontario, if the testator died leaving a spouse and children, the first $200,000 of the estate is paid to the spouse and the remainder of the estate is divided among the surviving spouse and children.

The intestacy rules differ across the provinces and territories, including who is considered to be a “spouse”. In Ontario, Quebec, New Brunswick, Newfoundland, and Yukon, married spouses are considered “spouses”, including same-sex married spouses. In British Columbia, Alberta, Manitoba, Prince Edward Island, Nova Scotia, Northwest Territories, and Nunavut, and most recently Saskatchewan, common law partners, provided certain conditions are met, are also considered “spouses” in addition to married spouses given recent changes in the law.

The preferential share for a spouse ranges from as low as $50,000 in Nova Scotia and Nunavut, to as high as $300,000 in British Columbia if the surviving child or children are common to the deceased and the surviving spouse. In Alberta and Manitoba, the whole estate is left to the spouse if the deceased left a spouse and a common child or children with that spouse.

The intestate succession legislation of British Columbia, Alberta, and Manitoba, and most recently Saskatchewan, treat the share to which a spouse is entitled on an intestacy differently based on whether there was a common child or children with the deceased or a child or children from a different relationship.

The “preferential share” was first introduced in Ontario in The Intestates’ Estates Act in 1895. These provisions were later repealed and incorporated into the Devolution of Estates Act in 1897. This landmark reform, which was based on the U.K’s Intestate’s Estate Act, was a significant departure from the previous “dower” rights. Dower rights provided the surviving spouse with no absolute interest in the deceased’s estate, and instead only a life interest in a portion of the estate. This reform gave an entitlement to a fixed interest in the deceased’s spouse’s estate and an additional interest in the remainder of the estate.

The amount of the preferential share has been increased a few times since the $1,000 share was first introduced in 1895, including an increase to $20,000 in 1960, to $75,000 in 1977, and most recently to $200,000 in 1995, which is still the amount today. The amount was loosely based on the average value of a home in the Toronto area in order to allow the surviving spouse the ability to acquire the home as part of his or her preferential share.

The U.K. updated its inheritance laws in 2014 with the new Inheritance and Trustees Powers Act 2014. The U.K. rules have a similar concept of the preferential share. Interestingly, the amount is to be index linked and regularly reviewed. The fixed sum of £250,000 was recently reviewed and increased to £270,000 in February 2020.

The cost of living continues to increase and house prices in the Toronto area continue to rise. Ontario’s intestacy rules, particularly the preferential share, do not reflect an appropriate allocation among a surviving spouse and children. The preferential share hasn’t been updated in over 25 years, and it is time for a review and a change to reflect the increased cost of living and housing prices since 1995.

The existing small amount of $200,000 can have negative consequences for a surviving spouse and children, including triggering tax as not all of the property inherited can be “rolled-over” tax-free to the surviving spouse, and as well can leave a spouse, particularly in smaller estates, with inadequate financial resources.

Out of interest, $200,000 in 1995, if adjusted in accordance with the Consumer Price Index published by Statistics Canada, in today’s dollars would be approximately $310,000. Even more interestingly, the average selling price of houses in Toronto as of June 2020 was approximately $930,000.

It is time for Ontario as well as other jurisdictions to review and revamp the preferential share and their intestacy laws generally and to consider following the lead of some of the other provinces and territories and the U.K., which have taken progressive steps in this area, including in the U.K. where the amount is index-linked and regularly reviewed.

In our next blog, Susannah Roth will further discuss common law rights on an intestacy.

— Marly Peikes

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.
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