We often get asked this question from our estate planning clients at our law office in the Kanata-Stittsville area of Ottawa. In our experience, the concern usually stems from the desire to know that the inheritance will be able to be passed down to grandchildren rather than being shared with an ex.
In short, the answer to the question is, maybe. It all depends upon what your son or daughter chooses to do with the inheritance.
Briefly, when spouses separate or divorce, a specific formula is used to calculate each spouse’s ‘net family property’. This is the value of each spouse’s property after deducting the debts and liabilities at the time of separation and the value of the assets that each spouse brought into the marriage (other than the matrimonial home). The spouse with the higher net family property will be required to make an ‘equalization’ payment to the other. At the end of the day, each spouse should leave with half of what was accumulated during the marriage plus any of their own property which was excluded from the calculation.
The law in Ontario sets out certain excluded property which does not have to be shared in the event of a marriage breakdown. This includes an inheritance received after the date of marriage if the inheritance is treated in a specific manner.
In order for it to be excluded, your son or daughter must be able to show that their inheritance is still in existence at date of separation. If the original inherited asset was sold, it may be possible to ‘trace’ the inheritance into another asset and still have it excluded.
If the inheritance is mixed into the joint assets of your son or daughter and their spouse, it may be difficult to determine what portion came from the inheritance, risking the loss of some or all of the exclusion. For example, if the inheritance is used to buy an asset which is placed into the joint names of both spouses, the law assumes that a gift of half the inheritance to your son or daughter’s spouse was intended and the exclusion will only apply to half of the asset.
If the intention is to keep the inheritance separate, your son or daughter would be well-advised not to use the inheritance to purchase or renovate the matrimonial home or even pay down the mortgage. Under Ontario’s family law, a matrimonial home is afforded special treatment. Unless the spouses have a marriage contract in place stating otherwise, the value of the matrimonial home is always brought into the calculation of net family property.
Generally, any increase in the value of the inheritance would also be excluded. However, any interest or income earned on the inheritance is not excluded unless the deceased person expressly stated in writing that the interest or income from the inheritance is also to be excluded. This is usually done in the gifting person’s Will.
Your son or daughter must keep their inheritance separate from assets they own with their spouse and use a properly drafted Will to ensure the gift is passed down to your grandchildren. Alternatively, the use of a trust in your own Will can achieve this result.
Do you want to explore this issue a little further? Do you want to make sure your Will specifically states that income and interest on an inheritance is to be excluded? We invite you to call 613.836.9915 or email email@example.com to make an appointment to meet with one of our estate planning lawyers. Together will we make sure your Wills are in line with your estate planning goals and provide for your loved ones in the best way possible.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you