Archive for ‘Benefits’

January 23, 2016

Don’t spend that life insurance money too quickly!

Life insurance can be an effective way to leave a legacy.  It allows you to benefit a loved one and, unless the insured’s estate is the beneficiary, avoids the requirement that funds pass through probate.  However, life insurance proceeds are not entirely free and clear of estate obligations in Ontario – so beware before spending that money (and do not disregard notice of court proceedings) – as one man’s daughter learned in the recent case of Bormans v. Bormans Estate.

Sections 72(1) (f) and (f.1) of the Ontario Succession Law Reform Act deem life insurance proceeds to be an estate asset for the purpose of determining the rights of a dependant to support from the estate.  Insurance proceeds therefore may be available to pay support if the other assets of the estate are insufficient to do so.  In Bormans, Mr. and Mrs. Bormans divorced after 38 years of marriage.  Mr. Bormans was to pay support to Mrs. Bormans and warranted to her that she was named as beneficiary of his company life insurance policy.  When he died, without assets, Mr. Bormans was in arrears of his support obligations.  To Mrs. Bormans’ surprise, the company policy had been cancelled but Mr. Bormans had purchased another life insurance policy, naming his daughter as beneficiary.  The proceeds of that policy had been paid to the daughter.  The daughter, despite notice of a  court application by Mrs. Bormans for dependant’s relief, proceeded to dispose of most of the insurance proceeds.

The Court found that Mrs. Bormans was a dependant of Mr. Bormans’ estate.  As a result, the Judge determined that most of the policy proceeds paid to the daughter should have been available to satisfy the estate’s support obligations to Mrs. Bormans.  The Court placed emphasis on the fact that Mr. Bormans had warranted that Mrs. Bormans was the beneficiary of a life insurance policy.  The daughter was ordered to pay to Mrs. Bormans most of the insurance proceeds, with the exception of some amounts spent prior to her receiving notice of the court application.  As the daughter had already used a large part of these proceeds, she became personally liable to repay these amounts.

September 9, 2013

The Rise of “grey stocks”

December 5, 2012

Pension Benefits on Death – Who is a “spouse”?

A recent Ontario Court of Appeal decision in Carrigan v. Carrigan deals with the issue of married versus common law spouses for the purpose of entitlement to pre-retirement death benefits under the Ontario Pension Benefits Act (“PBA”).  

Section 48(1) of the PBA entitles the spouse of a pension plan member to the value of the member’s pension where the member dies before commencement of pension payments except where the member and spouse are living separate and apart on the date of death (s. 48(3)).  If the s. 48(3) exception applies, s. 48(6) provides that the benefit goes to any beneficiary named by the member.

At the time of death in this case, the deceased was legally married to A but was living separate and apart from her.  He was living with B in a common law relationship.  The deceased had designated A and their daughters as beneficiaries of the death benefit in his pension plan.  A brought an action for a declaration that she was entitled to the deceased’s pre-retirement death benefit under s. 48 of the PBA.  B opposed, claiming the right to same as a “spouse” under s. 48(1).  The trial judge found that both the plaintiff and the defendant fell within the definition of “spouse” in s. 1 of the PBA but that only one spouse can be entitled to a member’s death benefit under s. 48(1).  She interpreted s. 48(3) of the PBA as requiring that a spouse be living with the member in order to be entitled to the death benefit and that because the deceased and A were living separate and apart at the time of death, held that B was entitled to receive the death benefit because she was a spouse and was living with the deceased at the time of his death.

The Court of Appeal overturned this decision with one of three judges dissenting.  The majority held that while both A and B fell within the definition of “spouse” under s. 1 of the PBA, the word “spouse” in s. 48 must always refer to the legally married spouse, because it makes no sense under s. 48(3) to conceive of a common law spouse living separate and apart from the member.  When s. 48(1) does not apply, there is no provision that the “spouse” of the member is entitled to the death benefit.  As there is no spousal entitlement, the member’s designated beneficiary was therefore entitled to the death benefit under s. 48(6), with the result that A and her two daughters were entitled to the death benefit as the deceased’s designated beneficiaries.

Justice LaForme dissented, holding that, as the definition of “spouse” in the PBA includes both legally married and common law spouses, to read “spouse” as having only one meaning in s. 48(3) (ie. a married spouse) would be to give “spouse” a different and more restrictive meaning under s. 48(3) than under s. 1.  He held that while A qualified as a spouse on the date of death, she was living separate and apart from the deceased on the relevant date.  As a result, s. 48(1) did not apply to her.   B was also a spouse on the date of death, and was not living separate and apart from the deceased.  Accordingly, B was not disqualified from receiving the death benefit by virtue of s. 48(3).

It is not clear if this result was intended (or even contemplated) by the Legislature.  However, if the intention is that the benefit go to a common law spouse over a named beneficiary where a married spouse is otherwise not entitled under the PBA, an ammendment to the legislation will be required.