Tag: Dependant relief

Dependant trumps named beneficiary – Life insurance deemed to be an estate asset

Contrary to what some in the general public may believe, the law is seldom black and white.  In truth, ‘shades of grey’ may be a more apt description where competing legal claims must be reconciled, especially where moral rules are required to be applied.

One such intersection of legal and moral considerations is Part V of the Ontario Succession Law Reform Act (SLRA), which may allow a dependant of a deceased person to access insurance proceeds that have been paid outside of an estate.  The Ontario Supreme Court considered these provisions recently in Stevens v. Fisher, pitting a deceased’s common law spouse against a prior common law spouse who was the named beneficiary on a group life insurance policy.

A brief family history

Mark Fisher had two children during his marriage that ended in 1988, and two more children during a 10 year common law relationship.  Two further common law relationships followed, about 13 months with Constance Eagles, and 11 years with Camille Stevens up to his death in 2010 at the age of 52.

Mr. Fisher’s estate consisted of a house and its contents, several old vehicles as leftovers from his occasional buy-sell activities, and about $5,000 in a bank account.  These assets were well exceeded by debts that included a fully encumbered line of credit mortgage of $197,000 and over $50,000 of unsecured debt.  Ms. Stevens was the named beneficiary of his only RRSP, valued at $1,911.

There were three life insurance contracts:

  1. Manulife policy for $50,000 payable to his daughter from his first relationship (his son having died many years earlier);
  2. Transamerica policy for $250,000 payable to his first common law spouse in trust for his two youngest children, one of whom is autistic and requires 24-hour care; and
  3. Sun Life group policy for $84,000 through his employer payable to Ms. Eagles.

Neither Ms. Stevens nor Ms. Eagles was aware of the Sun Life policy until after Mr. Fisher’s death.  Specific to Ms. Eagles, a payment of $12,500 had been made in the final settlement (and court order) out of that relationship, with no mention of this insurance policy.

Making the dependant’s claim

There is a very detailed account of the interdependency of Ms. Stevens and Mr. Fisher over their decade-plus relationship.  In addition to having worked for free in a business ventured from which he alone profited $38,000, she generally accommodated her work to his needs.  She had principal driving duties to keep him in touch with his children and his doctors, particularly in his last years when he was in deteriorating health.  During this time, she was unable to maintain steady employment, and they managed mainly on his disability income.  After his death, she has struggled with multiple concurrent minimum wage part-time jobs; in the judge’s words, “Now, the only life she has involves working to survive.”  

The judge had no problem concluding that Camille Stevens is clearly a dependant entitled to claim – but against what?

Ms. Stevens was not claiming a property interest in any estate assets; rather, she was claiming under SLRA Part V to obtain support payments out of the estate prior to distribution to beneficiaries. Despite this distinction, on the face of it such a claim would still have been fruitless when considering the formal estate alone, given the net negative value.

In an attempt to give effect to the claim, Ms. Stevens sought to attach the Sun Life policy payable to Ms. Eagles.  Section 72 of Part V expands the formal estate to items and arrangements over which a deceased had control while living.  This includes such things as gifts mortis causa (ie., gifts just before death), property held under joint ownership with right of survivorship, and life insurance owned by the deceased.  Group life insurance (which is not always owned by the person whose life is insured) is a specifically enumerated item in the section.

Applying law to facts

The court rejected the argument advanced on behalf of Ms. Eagles that Ms. Stevens should also be claiming against the other insurance policies.  The arrangements made to care for those other dependants should not be disturbed.

As to the quantum of the support, it bears repeating that the nature of this type of a claim is not a seizure.  After canvassing a variety of ways to calculate the support amount, the judge fixed it at $65,000 based on a combination of the estate’s ability to pay and the dependant’s need.  To this he added $10,000 for Mr. Fisher’s moral obligation to provide her with more than just the bare legal obligation.  Ms. Eagles was entitled to the remaining value of the policy, being $9,000. 

Life insurance proceeds exposed to dependants’ claims

A key estate planning feature of life insurance is a policyholder’s ability to direct proceeds to a beneficiary outside of a deceased’s estate.  But there are limits to this power, as illustrated in the recent Ogilvie Estate case at the Ontario Court of Appeal.

From one perspective, Lloyd Ogilvie left what some might consider an efficient estate: sufficient assets to pay final expenses, and two life insurance policies paying out on his death to his spouse Mary.  

But estate matters are about people, and Lloyd also left behind six children, three of whom were minors.  The eldest of those minor children lived with Lloyd and Mary, but the other two lived with their respective mothers.  Each of those minor children and Mary qualified as dependants of the estate, and indeed claims were lodged for support.

As the direct estate assets were required for those final expenses, the only other potential sources of funds were the life insurance policies.  Under the Ontario Succession Law Reform Act, such funds may in fact be drawn into a deceased’s estate if he or she is the owner and life insured on a policy.

In this case, Lloyd owned a $60,711 policy on his own life, and jointly owned a $109,000 mortgage protection policy with Mary that would pay to the survivor on the first death of the two of them.  

With respect to the first policy, the court determined that it was available for the support claims, but on the facts of the case only the three children were entitled to such support.

The second policy escaped inclusion for support, even though Lloyd was both an owner and a life insured.  The court explained that ownership “is an elastic term”, and that this policy “was not owned by the deceased; it was jointly owned by him and Mary Ogilvie.”  Furthermore, while Lloyd was a life insured, the policy was “effected on the lives of both co-owners.”  Finally, Mary received the proceeds of the policy not as beneficiary but as an owner: “At the instant of Lloyd Ogilvie’s death, her joint ownership interest swelled to become an absolute entitlement to the proceeds of the second policy.”  In sum, the court held that the policy could not reasonably be treated as an estate asset, even under an expanded view allowed for determining dependants’ support.

For financial advisors, the general lesson is that, apart from moral considerations, dependants’ claims are in a specially protected category.  Some practice points:

  1. Understand the scope and limits of dependants’ relief provisions in your province. 
  2. Ask about and understand a client’s relationships so that life insurance ownership and beneficiary designations can be catered to unique circumstances.
  3. Counsel clients in such circumstances to address their broader estate planning issues through an up-to-date Will and such other procedures and documentation as may be recommend and prepared by a qualified estate planning lawyer.
  4. Continue to emphasize the creditor protection benefits of life insurance, but never go so far as to utter the phrase “creditor proof.”

Madore-Ogilvie (Litigation Guardian of) v. Ogilvie Estate, 2008 ONCA 39