Inheritance in Ontario: Protecting What’s Yours

Inheritances hold special meaning, and in Ontario they are also subject to special rules. Whether you are single, married, or planning your estate, it is important to know that inheritances are not always treated like other property.

An inheritance is often meant for one individual rather than being treated as a shared family asset. Because of this, Ontario law allows inheritances to be handled differently when property is divided or when an estate is administered.

This distinction matters in many situations. It can determine whether an inheritance is shared between spouses after separation, how it passes on when someone dies, and what steps parents or grandparents can take to protect family wealth for future generations. Knowing these rules and planning ahead can help keep inheritances safe.

When Marriage Ends in Separation

One of the most common times inheritance rules are tested is when a marriage ends. In Ontario, when spouses separate, the law requires a calculation to determine how property will be shared. Rather than dividing every asset in half, the law looks at how much each spouse’s wealth grew during the marriage.

Ontario’s system of equalization is designed to treat marriage as a financial partnership. At separation, each spouse calculates the value of their assets, subtracts debts and the value of property they owned at the start of the marriage, and determines their net family property. The spouse with the larger increase usually owes the other half the difference.

Not every asset is included in this calculation. The Ontario Family Law Act sets out exclusions, and inheritances are one of the most common. A spouse who receives an inheritance during marriage may not have to share it in equalization. The same is true for certain gifts from third parties, personal injury awards, and some life insurance proceeds. These exclusions recognize that some property comes from outside the marriage and should not automatically be divided.

Exclusions are not guaranteed. The spouse claiming an exclusion must prove it applies. That usually means being able to trace the inheritance and show it was kept separate. Without documentation and careful management, an inheritance can lose its protection.

How Inheritances In Ontario Lose Their Exclusion

Even though the law allows inheritances to be excluded, there are common mistakes that can cause the protection to be lost:

• Using inherited funds for the matrimonial home. The family home has special status under Ontario law. If inherited money is used for a down payment, mortgage payments, or renovations, the exclusion is usually lost.

• Mixing funds with joint accounts. Depositing inherited money into a shared account and spending it alongside other family funds can make it impossible to prove what portion came from the inheritance.

• Lack of documentation. Without estate papers, cheques, or bank statements, it can be difficult to prove the inheritance was received and still exists. The law requires the spouse claiming the exclusion to provide proof, and weak records can undermine a claim.

Losing the protection of an inheritance is often the result of small, preventable mistakes. Knowing the risks is the first step to avoiding them.

How to Protect Inheritance In Ontario

Estate planning can make it much easier to protect inheritances. A Will can include clauses that specify an inheritance is intended for the recipient alone and should not form part of equalization. Clear wording helps prevent confusion and strengthens the case for exclusion.

Trusts are another powerful tool. By placing an inheritance in trust, a parent or grandparent can ensure the funds are available for a child while still keeping them separate from equalization. A trust can provide access to income or capital when needed, while preserving the core inheritance for the future. In cases involving real estate, Principal Residence Trusts in Ontario may also be worth considering.

These approaches need to be carefully drafted and coordinated with the rest of the estate plan. A well-prepared Will or trust not only prevents conflict but also makes the intentions of the person making the Will clear. When no Will exists, the focus should shift to protecting inheritances through clear legal structures that show what the person leaving the inheritance intended.

For individuals who receive inheritances, the best protection comes from simple but important habits:

• Keep inherited money in a separate account.

• Avoid using it for the matrimonial home.

• Keep copies of the documents that prove where the money came from.

• Avoid joint asset planning.

Taking these steps makes it much easier to show that an inheritance qualifies as excluded property under Ontario law.

Conversations about inheritances can also help. While not always easy, discussing your intentions with beneficiaries provides clarity and prevents surprises later. Clear communication, paired with careful legal drafting, is one of the best ways to protect family wealth.

The rules around inheritance in Ontario are technical, and mistakes can be costly. Whether you are receiving an inheritance or planning to leave one, legal advice will give you the best chance of protecting assets.

The Ontario Family Law Act was designed to promote fairness, but it also recognizes that some property should remain outside of equalization. With the right planning, inheritances can be preserved for the people they were meant to benefit.

At E is For Estates we can explain how exclusions work, recommend strategies for keeping inheritances separate, and draft documents that reflect your intentions. Contact us today to arrange a consultation.

This article is intended for informational purposes only. For personalized advice tailored to your specific circumstance, please reach out to the E is for Estates team.

Erin L. Watson, B.A., JD

Lawyer & Notary Public

E is for Estates