The Legal and Tax Implications of Dying Intestate

As a Trust and Estate Practitioner (TEP), I frequently encounter inquiries regarding the necessity of drafting a will. The absence of a will upon an individual’s death results in what is legally known as intestacy. This situation not only complicates the distribution of the deceased’s assets but also introduces a host of potential challenges.

Intestacy may occur not only through the absence of a will but also if a will is deemed invalid. Invalidity can arise under several circumstances, including lack of capacity by the testator, undue influence during the will’s preparation, or errors in executing the will’s formalities. Additionally, partial intestacy is possible when a will fails to dispose of the entire estate or when named beneficiaries predecease the testator.

The distribution of an intestate estate is governed by the laws of the province where the testator resided at the time of death, as well as the laws of any jurisdiction where the assets are located. While specifics vary, the general order of asset distribution prioritizes spouses, children, parents, and then siblings, with particular nuances in provinces like Alberta. For instance, Alberta’s legislation stipulates that the surviving spouse receives the entire estate if all descendants are also descendants of the surviving spouse. If not, the spouse is entitled to the greater of a preferential share ($150,000) or 50% of the net estate value, with the remainder distributed among the intestate’s descendants. Additionally, Alberta’s Dower Act grants the surviving spouse a life interest in the homestead.

• Spouse
  • Priority is generally given to the surviving spouse. In Alberta the spouse receives the entire estate if descendants are of the deceased and surviving spouse.  Otherwise, after the greater of preferential share ($150,000) or 50% of net value of the estate, the remainder goes among the intestate’s descendants.  In Alberta, the Dower Act also provides for the surviving spouse to have a life interest in the homestead.

• Children
  • If there is no surviving spouse, but there are children or issue, the entire estate will be inherited by the children and issue of any pre-deceased child. This is divided using a calculation of a per stirpes and will be explained in a subsequent blog.

• Parents
  • If the individual passes with no spouse, children or issue, the entire estate will be inherited by the intestate’s parents.

• Brothers and Sisters
  • In Alberta, if the individual passes with no spouse, children or issue and their parents have also passed, the entire estate will be inherited by the intestate’s brothers and sisters.
    • Brothers and Sisters. In Alberta, if no spouse, children, issue, or parents – descendants of the parents (siblings of the deceased).

The absence of a will precludes the opportunity to specify asset distribution according to the deceased’s wishes. This necessitates family members or other interested parties to petition the court for estate administration rights, frequently leading to disputes and litigation. Identifying the deceased’s assets and liabilities becomes a cumbersome process, compounded by the need for special arrangements for minor dependents, such as court-managed inheritances. These procedures incur significant costs and complexities.

Moreover, intestacy may trigger additional tax liabilities, forfeiting strategic opportunities for tax planning. Effective estate planning, facilitated through a properly drafted will, is paramount in circumventing these issues.

At Shajani CPA, we are uniquely positioned to assist clients and their legal counsel in the tax considerations of preparation of their wills. Our expertise as financial advisors, accountants, and tax professionals enables us to streamline the will preparation process, ensuring that our clients’ estates are managed and distributed in accordance with their wishes while optimizing tax implications. Preparing a will is not merely a legal formality; it is a crucial step in safeguarding your legacy and ensuring the financial well-being of your heirs in accordance with your ethical and familial values.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.