Impending changes to Alberta's wills and estates legislation should raise some red flags with financial advisors who deal with estate planning, some lawyers there say.
The new laws, designed to conform with prevailing standards in family law, could make it harder for those with businesses or complex family situations wishing to keep their businesses intact after their death.
The policy behind the changes is not new or unfair; like other provinces, Alberta wants to ensure that surviving spouses are in no worse a position than if they had divorced. As a result, in jurisdictions where the succession laws have been changed to reflect this policy, the surviving spouse can apply to the court to alter a will that leaves the survivor with less than 50% of the couple's family assets (the usual minimum under provincial family laws).
However, the new Alberta law, which comes into force on Feb. 1, 2012, goes further: the surviving spouse can apply for a 50% division of matrimonial property in addition to whatever gift is made to that spouse through the will.
Although the goal is fairness, that may not always be achieved. Some lawyers in Alberta believe the new legislation could end up breaking up family businesses to pay the surviving spouse, even though that spouse has been well provided for under the will.
"This change was not something that we expected," says Melanie McDonald, a lawyer with Borden Ladner Gervais LLP in Calgary. "While we are not surprised that a married surviving spouse should be allowed to receive what they would have gotten in a divorce, we see a potential double-dip effect in the new act."
Large estates are the ones most likely to be affected. Says McDonald: "It will have the biggest impact on those who do not plan on leaving their entire estates to their spouse."
McDonald says this situation typically involves second marriages, long-term separated couples, business owners and high net-worth clients who wish to leave some of their assets to charities and other family members. Adds McDonald: "The most complex estates could be where someone wants one child to have a certain thing, which could be a family business. Ranching is a common business here, and those are the hardest estates to split up."
The new legislation amends Alberta's Matrimonial Property Act and replaces the Dependents Relief Act.
Averie McNary, director of legislative reform for Alberta's Department of Justice, explains what drove the change: "Spouses in Alberta could claim their matrimonial property before, but they had to go through the Dependents Relief Act process and prove that the estate they received wasn't adequate. So, when you compare it to divorce, it wasn't fair."
McNary says the change was also partly driven by the result in a 1994 judgment from the Supreme Court of Canada: the ruling in Tataryn v. Tataryn ruled that a surviving spouse should be left with the same reasonable standards of living he or she had prior to the death of their spouse.
Some lawyers, however, are concerned the new legislation could leave non-spousal beneficiaries with much less than the testator intended. A surviving spouse who can claim a matrimonial share — in addition to a gift in the will — could disrupt the overall balance in the estate that the testator intended.
But McNary believes that the new legislation won't provoke an epidemic of estate litigation. She notes that testators can avoid the double claim by having an agreement in place with their spouse that no claim will be made against the matrimonial property. The testator can also make provisions directly in the will to avoid the loss of a business in this way.
For advisors who feel that these changes could adversely affect their clients, McNary suggests urging clients to formulate an estate plan now to address these issues.
Other jurisdictions have chosen to avoid this result by providing for an election by the surviving spouse. In Ontario, Nunavut and the Northwest Territories, surviving spouses are required to choose between the two options — either accept the terms of the will or invoke the provisions of that jurisdictions' family-law legislation. IE