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NO WILL - NO ROLLOVER OPTION
There can be some very serious, and unwanted, consequences that arise from dying without a valid will, which demands your immediate attention.
To schedule an appointment, contact our law firm at 403-400-4092 or Chris@NeufeldLegal.com
When you die without a valid will (intestacy), the distribution of their estate is governed by the Wills and Succession Act (Alberta), together with the Income Tax Act (Canada) which imposes significant distinctions between how assets are treated when passing to a surviving spouse versus how they are handled when passing to children. A spousal rollover (also available to adult interdepedent partners) allows capital property and registered accounts, such as RRSPs or RRIFs, to be transferred to a spouse at the deceased’s adjusted cost base. This effectively defers any capital gains tax or income tax until the surviving spouse eventually sells the asset or passes away themselves. This mechanism is designed to provide financial stability for the survivor, ensuring that the immediate tax burden doesn't deplete the marital home or retirement savings.
However, this tax-deferred privilege generally does not extend to transfers made to children or other descendants. When an asset passes to a child, the Canada Revenue Agency views this as a deemed disposition at fair market value immediately prior to death. If the asset has appreciated in value since it was first acquired, the estate must recognize a capital gain, and 50% of that gain is added to the deceased's final tax return as taxable income. For registered accounts like RRSPs, the entire market value of the account is often added to the final year's income. Because these taxes are triggered at the moment of death, the estate must have sufficient liquidity to pay the resulting bill before the remaining assets can be distributed to the children.
The intersection of intestacy and tax liability creates a particularly difficult situation for Albertan families who might be caught off guard. Since the Wills and Succession Act (Alberta) dictates a specific formula for distribution, often splitting the estate between a spouse (adult interdependent partner) and children if the children are from a different relationship, a portion of the estate is forced into a taxable event earlier than expected. Without a will to specify that certain tax-heavy assets should go to the spouse (adult interdependent partner), while cleaner assets go to the children, the estate may be forced to sell off property or investments just to satisfy the CRA. This can result in a significant tax cost where a large percentage of the family's wealth is payable in taxes simply because the rollover provisions were not maximized through proper estate planning.
Ultimately, the lack of a rollover option for children means that an intestate estate in Alberta often faces a higher immediate tax bill than one where a spouse inherits the bulk of the assets. This tax liability must be settled by the personal representative before any inheritance can be issued to the heirs. If the estate consists primarily of illiquid assets, such as a family cottage or a private business, the children may be forced to sell the very legacy their parents intended for them to keep. Proper planning, such as the use of life insurance or the drafting of a comprehensive will, is essential to ensure that the transition of wealth doesn't result in an avoidable financial crisis.
As such, leaving behind your inheritance without a valid will has the potential for numerous consequences, many of which could either be avoided in their entirety or significantly limited by having a valid will, which was supported by appropriate estate planning in advance of one’s death. Avoid putting your loved ones in the difficult situation of attempting to settle and administer your estate without a valid will, by putting in place the necessary estate planning documents when you are alive and capable. Contact our law firm today at 403-400-4092 or via email at Chris@NeufeldLegal.com to schedule a confidential initial consultation.
IMPORTANT NOTE: This website is designed for general informational purposes. The site is not designed to answer specific questions about your individual situation or entitlement. Do not rely upon the information provided on this website as legal advice in respect of your individual situation nor use it as substitute for individual legal advice. If you want specific legal advice, you need to engage a lawyer under established legal engagement procedures that have been specifically agreed to by that lawyer.
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