Is the payment and discharge of a mortgage from the proceeds of a mortgage insurance policy to be taken into account in determining the “net value” of the estate for the purposes of determining a spouse’s preferential share?
That was the question before the court in the recent case of Re Estate of Richard Lewis Crane. The deceased, Richard Lewis Crane (the “Deceased”), died intestate. He was survived by his spouse, Janice Crane, and by two sons from a previous relationship, Scott and Jamie Crane (collectively the “sons”). A Certificate of Appointment of Estate Trustee without a Will was granted to Janice. The sole asset in the estate was the matrimonial home.
The home was valued at approximately $294,500 as of the date of the Deceased’s death. It was subject to a mortgage, of which sum $100,339.26 was outstanding at the date of the Deceased’s death. However, the Deceased had a mortgage insurance policy which paid off the mortgage. and it was discharged.
Janice took the position that the value of the house, net of the mortgage, was less than the preferential share of $200,000 payable to a surviving spouse on an intestacy pursuant to s. 45 of the Succession Law Reform Act R.S.O. 1990, c. S. 26 (SLRA) (the amount of the preferential share being set by Ont. Reg. 54/95). Consequently, the sons had no financial interest in the estate. The sons argued that the mortgage insurance payment should not be considered in determining the net value of the estate, and accordingly the value of the estate was in excess of the $200,000 preferential share payable to Janice.
The court noted the definition of “net value” set out in the legislation was as follows: “the value of the property after payment of the charges thereon and the debts, funeral expenses and expenses of administration.” The court went on to find that the object of s. 45 of the SLRA was to confer limited protection on surviving spouses of persons dying intestate. This goal is accomplished by providing them with entitlement to a preferential share in the assets of the intestate estate – after satisfaction of the debts and obligations of the estate. The court found that the purpose of the “net value” concept in the SLRA is to ensure that the true value of the estate is considered in determining whether the preferential share of the surviving spouse has been exceeded, and if so, to what extent.
The court found that where a third party, such as a mortgage insurer, is contractually bound to the estate to pay off a charge or debt of the estate on the death of a deceased, such payment should be taken into account in determining the true value of the estate. The court found that there was no real difference between the estate paying the mortgage debt from other resources, and the estate requiring the mortgage insurer to pay off the debt, as happened in this case.
As such, the court made a declaration that the net value of the estate for the purposes of s.45 of the SLRA was to be determined without reduction by the amount owing under the mortgage registered against title of the property, by virtue of the payment of the outstanding balance of that mortgage by the insurer. Further, the court found that the sons of the Deceased accordingly had a financial interest in the estate.
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