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Daughters Named as Beneficiaries, But Widow’s Right to Million-Dollar Insurance Policy Proceeds Determined by Ontario Succession Law

Daughters Named as Beneficiaries, But Widow’s Right to Million-Dollar Insurance Policy Proceeds Determined by Ontario Succession Law

In Matthews v. Matthews Estate, the husband and wife – who had two daughters together – separated in 2006.   The separation and divorce was typical, and included the usual requests for relief including a divorce, child and spousal support, child custody, exclusive possession of the matrimonial home, and equalization of Net Family Property.  Over the next few years, the parties managed to settle and resolve most of these matters, with the exception of spousal support and equalization which still remained to be determined.

However, there were a few little twists in the story.  

The first is not unusual:   at the time of separation, the husband had a $1 million life insurance policy, and had named his two daughters and sister as beneficiaries.  The daughters were to share $900,000 of the policy proceeds upon the husband’s death, with his sister taking the remaining $100,000.

The second twist, however, was that the husband died in the summer of 2010, just after the trial on the remaining matrimonial had begun (in May), but before the judge had written up the reasons for judgment (in August).  It is important to note that just before the husband’s death, the court in the process of sorting out the parties’ matrimonial issues had made an order vesting the life insurance policy in the wife, designating her the sole beneficiary, and making her responsible for paying all the premiums, going forward.

The third twist is that the without the $1 million life insurance policy, the husband’s estate did not have enough money to satisfy the wife’s spousal support needs.    In fact, at the time of the husband’s death, the matrimonial home had not yet been sold, the husband’s estate was insolvent, and the question of spousal support entitlement and an equalization payment to the wife were still unresolved.

As a result – and despite the fact that the deceased husband had named the daughters and his sister as beneficiaries – the entitlement to the proceeds of the policy was still an issue; the wife was asking for these proceeds to be used in order to pay the support that she was entitled to, as a dependent widow under the Succession Law Reform Act.  (That legislation provides that where a deceased has not made adequate provision for the support of his or her dependants (whether by testamentary document or otherwise), the court may order that funds from the deceased’s estate be used for the dependant’s proper support).

As the court put it, after reviewing the history of the litigation and interaction between the various parties:

It soon became clear that the real contest between the parties was centred on the one million dollar insurance policy.  

The court reviewed the interplay between the beneficiaries’ rights under the policy and the law of dependant’s relief.  It concluded that the Succession Law Reform Act makes it clear that the proceeds of the husband’s life insurance policy can be treated as part of the deceased husband’s estate, and can be used to pay support to the dependant wife – notwithstanding the fact that the husband may have irrevocably designated the daughter and sisters as beneficiaries under the policy.   In other words, if the assets of the husband’s estate were insufficient to meet the husband’s obligations to support his wife as a dependant, then the court must look to his other assets – including the life insurance policy proceeds – which pass by right of survivorship or pass outside the will.     Moreover, in such cases the family litigation is converted into a claim under the Succession Law Reform Act.

However, the court added a caution for these kinds of cases:   Given that by virtue of the Act the proceeds of the husband’s life insurance policy (which is not normally part of a deceased’s estate) are nonetheless being brought into the estate, this will naturally affect the beneficiary daughters and sister detrimentally.  As such, care must be taken to ensure that the burden of any support order in favour of the wife is first borne by the traditional assets of the deceased’s husband’s estate, before any encroachment is made upon on the insurance proceeds.

(As a side note, the court also observed that Spousal Support Advisory Guidelines were not an appropriate tool for determining the spousal support obligations of the deceased husband.  Rather, there were to be determined pursuant to s. 62 of the Succession Law Reform Act, which sets out those circumstances that are to be considered in determining the amount and duration of spousal support.)

For the full text of the decision, see:

Matthews v. Matthews Estate (2012), 2012 ONSC 933  http://canlii.ca/t/fq4rd

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at  www.RussellAlexander.com.

 

 

Be Precise When Changing Your Beneficiary Designations via Will

 

Be Precise When Changing Your Beneficiary Designations via Will

Today’a Blog deals with an interesting decision with practical implications.   It’s called Orpin v. Littlechild, and involves the legal question of whether and how the beneficiary designation in a Life Insurance Policy can be effectively changed or revoked by a Will.  

In this decision, the husband and wife had been together for 22 years (and formally married for 16 of those) but had agreed to a trial separation in 2011.   The husband’s existing Will had directed that his entire estate was to be left to his wife, and that she was the designated beneficiary of his RRSP.   In 2009, he had transferred the RRSP to an insurer by way of an investment vehicle (the “Life Insurance Policy”), and had designated his wife the beneficiary of that as well.  

After the separation in 2011 the husband – who was evidently conflicted about who he wanted to leave his estate and assets to under the circumstances – make a series of changes to his testamentary arrangements in short succession.    He executed a new Will on March 14, 2011, leaving his estate to his two adult sons.  A day later, he signed a change of beneficiary designation with the insurer, and deleted reference to the wife in favour of his sons as well.   However, by March 25, 2011, he had apparently changed his mind, and executed another new Will, leaving his estate to the wife again.  That Will contained a clause indicating that he wanted her to be the sole beneficiary of:

“all moneys that I may have at the date of my death in any registered retirement savings plan, registered retirement income fund, registered pension plan, registered investment fund or any other similar device. I DIRECT my Trustees to make all necessary arrangements to transfer such funds to my spouse as soon as is reasonably practicable following the date of my death.”

However, the husband did not actually contact his insurer to change the beneficiary designation; instead, his sons remained on file with the insurer as the named beneficiaries.

The husband, who was clearly in emotional turmoil at this time, committed suicide shortly after.   The court had to decide whether this clause in the Will had the legal effect of changing the beneficiary designation for his Life Insurance Policy.    

As legislative background:  Under the Insurance Act, a beneficiary designation may be made or revoked by a “declaration”, which is defined by the Act to mean “an instrument signed by the insured”.    In order to be effective, the declaration must “identify the contract”, or “describe the insurance or insurance fund or part thereof”.   For these purposes, an “instrument” specifically includes a Will.

The court therefore had to examine the wording of the clause in the Will to see whether it met these criteria.    Although the clause did not even mention the word “insurance” at all (much less advert to an “insurance policy” or refer to a particular policy number), the court found that it was worded broadly enough to encompass all moneys held in any of the husband’s investment vehicles, including his RRSPs, (and the investment vehicle underlying the Life Insurance Policy qualified as such).   His use of the phrase “or other similar device” in the Will also indicated that he was intending to cast a wide net in order to capture all the monies and investments that he held.  All evidence pointed to the fact that his Will was implicitly intended to change the designation back in order to name his wife as beneficiary.

In coming to this conclusion, the court also looked at the surrounding circumstances that were in play at the time the husband changed his Will; this included the nature of his prior changes to the Will and life insurance arrangements, and the fact that in his conflicted state of mind in the days leading up to his suicide he may not have been attuned to the necessity of taking the added step of formally changing the beneficiary designation in the insurer’s own records.

In the end, the court held that the proceeds of the Life Insurance Policy were payable to the wife.

The case illustrates some important points:  when making or amending to a Will, make sure that its wording is clear, and that it reflects your express intentions in terms of the disposition of your estate and assets.  And don’t forget to take any extra corollary steps that might be needed to give full effect to those intentions.

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at  www.RussellAlexander.com

For the full text of the decision, see:

Orpin v. Littlechild et al., 2011 ONSC 7695  http://canlii.ca/t/fpgrd

 

 

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