By Patricia Dubois and the Sun Life team
In estate planning, there are two persistent myths. We’ll sort out the real from the fake so you can make sure your wishes are followed.
In estate planning, there are two widespread misconceptions:
When I die, my family will sell my house to pay my last expenses.
All my possessions will automatically go to my common-law spouse upon my death.
But is it true? Let’s make this clear.
- Can your family sell your house to pay your final expenses?
You probably have many assets that your children can inherit, for example:
Family residence
Chalet
Pension saving
Other investments
Our family can often sell our home, or other assets, to cover funeral expenses. Let’s say you decide to sell your house. It should then be done immediately after your death. It’s doubtful that it will happen that quickly.
Why is it problematic to rely on your assets to pay your final expenses?
Before your loved ones dispose of your property, they will have to pay funeral expenses and legal fees, not to mention current costs. Sometimes they have to draw on their funds because the will says nothing about it.
The tax authorities consider that a person “disposes of” their assets at their fair market value upon death. This is true for many goods, even if they have not been sold. The resulting capital gains are taxable. These “deemed dispositions” can result in a hefty tax bill. And it is the deceased, or his estate, who must pay it. The liquidator must then obtain a discharge certificate* before distributing the assets among the heirs. All of this sometimes happens even before they have received the money from the sale of the property.
(*The clearance certificate confirms that the estate of a deceased person has paid the taxes, interest and penalties owed.)
How can estate planning help your family?
By doing proper estate planning and a cash flow statement at the time of death, one can:
assess the consequences of the succession for the children;
avoid unpleasant surprises.
Do not forget that it sometimes takes a long time to settle the administrative formalities after a death. But the tax authorities and service providers will not wait.
Life insurance is an exciting solution. After your death, your loved ones quickly receive tax-free funds to pay the bills.
How do you choose the type of life insurance that’s right for you?
To help you see more clearly, consult a professional. For example, an advisor can assess your situation and help you make the right decisions regarding your estate.
- Is my common-law partner legally entitled to my inheritance?
In Canada, common-law partners and spouses are treated equally only in certain circumstances. Most provinces do not recognize a common-law relationship when one of the spouses dies intestate (without a will). If this is your case, your spouse could therefore not receive any inheritance from you. Yet many common-law spouses believe they inherit from each other by default.
How does succession between common-law spouses generally work in Canada, such as Ontario and Quebec?
Even if we live together for years, we are subject to the Civil Code of Quebec, for example. And this Code does not recognize de facto unions. This is why you need a notarized will. This document may specify the de facto spouse as the heir to the property belonging to him.
Without a will, the provincial provisions prevail. All of the possessions will then go to the children or, if there are none, to the deceased’s parents. The remaining spouse then risks finding himself co-owner of his house with his mother-in-law.
The same is true in Ontario and many other provinces.
British Columbia and Alberta
In British Columbia, the same intestacy rules apply to common-law and legally married spouses. The spouse inherits all the inheritance of the other only if the couple has no children. Otherwise, the surviving spouse receives the first $300,000 of the estate. This amount is reduced to $150,000 if the children are only those of the deceased. Then, this spouse is entitled to half of the rest of the estate, and the children share the difference.
The rules are similar in Alberta, where “adult interdependent partners” are used rather than “common-law spouses”.
For intestacy rules for your province, see your province’s website.
