Have you ever wondered what happens to all of a person’s stuff when they die?
After a life spent accumulating objects and spending money, where do all of the assets and debts go? What happens if there isn’t a will outlining a person’s final wishes? Does the entire estate automatically go to the surviving spouse? What about inheritance tax?
It’s a lot to have to worry about, especially after the loss of a loved one. That’s why we’ve put together this guide to help explain the ins and outs of Canadian inheritance law.
How does inheritance work in Canada?
In a country as vast and diverse as Canada, it’s only natural that there isn’t a one-size-fits-all approach to receiving an inheritance. While many provinces handle inheritance law in similar ways, it’s important to know the nuances of your particular jurisdiction.
Inheritance is the distribution of assets after someone dies, and it generally goes one of two ways. If the deceased person left a valid, legal will, then the estate is distributed to the beneficiaries named in the will. In the unfortunate and highly stressful situation where someone dies without a will, they are deemed to have died intestate. When someone dies intestate, their estate is dealt with based on provincial rules.
Curious about living inheritance, gifts given while both the giver and the receiver are alive? Read this article →
Does a spouse automatically inherit everything in Canada?
Whether or not a spouse automatically inherits everything depends on whether or not the deceased has any descendants and what’s specified in their will.
If the deceased person doesn’t have descendants, and doesn’t have a will, it’s possible that their spouse would inherit their property as their next of kin. In fact, in Newfoundland and Labrador, the spouse would inherit 100% of the estate in such a scenario. Generally speaking, the surviving spouse will automatically inherit the matrimonial home, however, this will also vary province by province.
If the deceased person names their spouse as their sole beneficiary, barring someone else with a claim contesting the will, the spouse would then inherit the assets. There may be times where this is straightforward, but there will be more when it’s not. And if there are children involved, it gets more complicated as the spouse may not get 100% of the assets, based on provincial rules.
So, if you’re banking on everything going to your spouse by default, it’s better to write a will than to put your hope in the provincial court carrying out your final wishes without a clue as to what you wanted.
Pro tip: Plan for the unexpected by adding contingent beneficiaries to your will.
Can a common law partner be considered a surviving spouse?
Some provinces include common law partners in their definition of spouses, and some don’t. This means knowing the difference between married spouses and common law partners is important.
At a high level, western provinces (BC, Alberta, Saskatchewan, Manitoba, Yukon Territory and NWT) account for common law partners, and eastern provinces (Ontario, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, and Newfoundland and Labrador) don’t.
What counts as a common law partner is different in each jurisdiction, so it’s always safest to check your specific region’s rules and find out how well your relationship will hold up legally if one of you dies. The variation across the country is why it's so important for common law partners to create wills to ensure their partners and loved ones are accounted for.
Learn more about common law inheritance →
The Canadian Pension Plan and surviving spouses
The Canada Pension Plan (CPP) provides basic benefits to CPP contributors when they retire or if they become disabled. When a contributor passes away, the CPP can also provide benefits, which include a survivor's pension, to the contributor's surviving spouse or common-law partner and dependent children.
Survivor benefits go to eligible survivors or into the estate of the person who has passed away. There are three types:
- The death benefit is a one-time payment to or on behalf of the estate of a deceased CPP contributor.
- The survivor’s pension is a monthly benefit paid to a deceased contributor’s surviving spouse or common-law partner.
- The children’s benefit is a monthly benefit for the dependent children of a deceased contributor. Children must be under 25 and attend a recognized educational institution full-time to be eligible for this benefit.
Eligible survivors must apply for these benefits to receive them and you can apply online or using a paper application.
Old Age Security and surviving spouses
Old Age Security (OAS) is a government-funded pension programme in Canada that provides monthly payments to people 65 and older, based on their residency history in the country. Because OAS benefits are not considered personal assets, they do not become part of the deceased's estate.
This means that these payments stop upon the recipient's death and beneficiaries of the estate would not inherit any of these benefits.
The exception is for surviving spouses or common-law partners aged 60 to 64, who may be eligible for the OAS Allowance for the Survivor, a monthly benefit designed to support low-income individuals who have lost their partner.
Who inherits when there is no will in Canada?
Dying without a will is called dying intestate. When someone dies intestate, the government uses provincial laws to decide how to distribute your estate and appoint the person who will handle everything.
Each province and territory has its own unique laws of intestacy, and what provincial law dictates may be very different from your final wishes. If you don’t take the time to name an estate trustee or designate beneficiaries in a legal will, the government won’t take into account the specific needs of your families or loved ones—and their cookie-cutter approach probably won’t align with your final wishes.
At a high level, assets are distributed between the surviving spouse and any descendants after the estate pays any taxes owed. The share of those assets depends on each province.
It doesn’t have to be difficult. Make inheritance easier with our quick will checklist. Get your free estate planning checklist →
Is a child entitled to an inheritance in Canada?
While each jurisdiction is a little different in how they handle inheritance, there are a few general guidelines that they tend to follow. For instance, testamentary freedom means that people can name whomever they want as beneficiaries in their will. Similarly, they can leave out anyone they want, even their own children.
That said, anyone who could have financial interest is able to contest a will, meaning that disinherited descendents are able to challenge it in court. The challenge is more likely to be accepted if the child is still a minor or recognized as financially dependent.
Independent adult children are not necessarily entitled to an inheritance, but in some places and cases–most notably, British Columbia–disinherited adult children have a strong claim against a parent's estate based on their moral obligation to an inheritance.
Does Canada have an inheritance tax?
Canada said goodbye to its inheritance tax in 1972. Instead, the Canada Revenue Agency (CRA) treats the transferring of the estate as a sale in most cases, and when someone dies, their estate pays income tax for the year up until their death.
This has some pretty important implications. For one, it means that the estate pays the bill, not the beneficiary. Secondly, for investments and registered assets that may have capital gains associated with them, the estate will have to pay any capital gains taxes owed before anyone inherits anything.
This is why it’s so important to cover all your bases and name beneficiaries when possible. By naming a beneficiary, the value of your investments may be able to be transferred directly to them without incurring extra taxes or fees. Also, if the estate is inherited by the surviving spouse or, depending on which province you’re in, common law partner, exceptions are possible.
Death and estate administration taxes
The only two things that are sure in life are death and taxes, and sometimes they go hand in hand. Aside from the final income tax return, the estate must often also pay probate fees. This is also known as an estate administration tax.
Essentially, if your estate requires probate, there is a tax on the estate assets as part of this process. The executor is in charge of paying the final tax bill, and paying any probate fees associated with the estate.
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Can you inherit debt in Canada?
No. Debt doesn’t get inherited by family members or spouses, but it does stay with the estate. This means that the estate must pay off all remaining debts, in addition to taxes and fees, before anything else can happen. No one can inherit anything until those debts are paid.
There is a scenario, however, where the debt doesn’t die with your estate.
Joint debt
Any co-signed loans or debt that was jointly held may be passed to the person who co-signed with the deceased. Authorized card users may also face a similar transfer of responsibility, so it’s always good to read the fine print and consult a legal or financial professional.
Student loans
When a person dies (or is permanently disabled), federal student loans are generally forgiven. By contrast, private student loans are treated like normal debt and must be repaid by the estate.
What happens with complex estates?
If you have a complicated estate, the first thing to do is talk to a lawyer. There are a few ways to reduce the costs and headaches of passing on money and property. You might consider transferring the property to joint ownership with the person you intend to leave it to or setting up a trust fund.
These are often very complicated arrangements, subject to specific rules, depending on your jurisdiction. Talk to a lawyer to be sure that your intentions are clear and will be carried out correctly per your estate planning documents.
You make the call
As with most things when it comes to inheritance, nothing is simple. Once the final tax return is filed and the fees paid, the executor of your estate will start distributing any remaining assets.
Instead of relying on provincial legal standards you may or may not agree with to choose an executor and beneficiary for your estate, why not save your loved ones a lot of time and grief? Make your wishes known in a valid, legal will to speak for you when you cannot.
