Understanding the Benefits and Tax Implications for the Surviving Spouse in Ontario

Marriage vs. Common Law: Understanding the Benefits and Tax Implications for the Surviving Spouse in Ontario

In Ontario, the benefits of marriage versus common law for the surviving spouse can vary significantly in terms of legal rights, Estate Planning, and taxation. Here are some key differences and benefits:

Marriage

1. Inheritance Rights:
   • Intestate Succession: If a married person dies without a Will, their spouse is entitled to a preferential share of the Estate (the first $350,000) plus a share of the remainder, depending on whether there are children. This ensures that the spouse receives a significant portion of the Estate.
   • Equalization of Net Family Property: Married spouses have the right to an equalization payment, which means they can claim half the difference in the value of family property acquired during the marriage upon the death of the spouse.
2. Survivor Benefits:
   • CPP Benefits: Married surviving spouse are entitled to Canada Pension Plan (CPP) survivor benefits, which can provide financial support after the death of their spouse.
   • Employer Pension Plans: Many employer pension plans provide benefits to a surviving spouse, which are typically more secure for married spouses.
3. Tax Benefits:
   • Spousal Rollovers: Married surviving spouse can benefit from tax-deferred rollovers of assets such as RRSPs, RRIFs, and certain other properties, allowing the surviving spouse to defer capital gains tax until they sell the assets or pass away.
   • Principal Residence: Married couples can transfer the principal residence to the surviving spouse without triggering capital gains tax, provided the residence is designated as the principal residence.
4. Probate and Estate Administration:
   • Simplified Process: The Estate Administration process can be simpler for a married surviving spouse, as they often have clearer legal standing and rights to inherit assets directly.

Common Law

1. Inheritance Rights:
   • No Automatic Right to Estate: Common-law spouses do not have automatic inheritance rights under intestate succession laws. If a common-law partner dies without a Will, the surviving partner may not be entitled to any portion of the Estate.
   • Dependent’s Relief Claim: Common-law partners may need to apply to the court for support under the Succession Law Reform Act (SLRA) as a dependent, which can be a more complex and uncertain process. It can also be expensive to pursue.
2. Survivor Benefits:
   • CPP Benefits: Common-law partners are entitled to CPP survivor benefits, provided they meet the eligibility criteria (such as cohabiting in a conjugal relationship for at least one year).
   • Employer Pension Plans: The rights of common-law partners to employer pension plan benefits can vary based on the plan’s specific terms and conditions. Some plans may provide benefits to common-law partners, while others may not.
3. Tax Benefits:
   • Spousal Rollovers: Common-law partners can also benefit from tax-deferred rollovers of assets such as RRSPs and RRIFs, similar to married spouses, provided they meet the CRA’s definition of a common-law partner.
   • Principal Residence: The same principal residence rules apply to common-law partners, allowing tax-free transfer of the principal residence to the surviving partner.
4. Probate and Estate Administration:
   • Complex Process: The Probate Process can be more complex for common-law partners, as their legal standing may not be as clear-cut as that of married spouses. They may need to provide additional proof of their relationship and cohabitation.

Summary

• Married Spouses: Have more secure and automatic rights to inheritance, survivor benefits, and tax advantages. The legal processes are generally more straightforward, and there are specific protections in place under family law.
• Common-Law Partners: May face more legal hurdles and uncertainties in terms of inheritance and Estate rights. They can access certain benefits and tax advantages but often need to take additional steps to establish their claims.

For both married and common-law partners, having a well-drafted Will and proper Estate Planning can help ensure that the surviving spouse or partner is adequately provided for and can minimize potential legal and tax issues. Consulting with a legal professional specializing in family and Estate law can provide tailored advice and planning strategies. Reach out to peter@smartwills.ca if you have any questions.

Find out more at Ontario Laws for Administering Estates

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