Surviving spouse not entitled to elect out of rollover on death
As discussed above, if you leave property to your spouse under your will, the property is subject to a tax-free rollover upon your death. However, your legal representative can elect out of the rollover, in which case the property is subject to deemed disposition at FMV and deemed acquisition by your spouse at FMV.
In the recent case of Picard v. Lagotte, a deceased left a rental property to her husband under her will. The husband wanted to elect out of the spousal rollover, hoping for an increased cost of the property at FMV and therefore a reduction in his future capital gains liability when he eventually sold the property. However, the deceased’s legal representative opted for the tax-free rollover because it was in the best interests of the deceased and thus the beneficiaries of the remainder of the deceased’s estate.
The deceased’s husband sued the estate, claiming various damages including damages relating to his increased future tax liability because of the rollover. The Quebec Superior Court dismissed his claim, holding that it was clear law that the decision to take the rollover (or not) was that of the legal representative and not the husband.
