May 9, 2023
There are few things more awkward than to discuss your own death; who gets to enjoy your hard-earned assets, including your home; or disclosing the identity of the person designated as the beneficiary of a life insurance. Cynics liken the proceeds to found money the beneficiaries have not earned, and raise concerns that all of the sudden your head has a price. Having said that, the freedom of structuring the payout of life insurance proceeds can be a very useful strategy on a few fronts including: a) setting off costs associated with certain assets in your estate. For example, paying out the outstanding mortgage on your home; b) paying for funeral expenses; c) as security against an obligation to pay child or spousal support; d) setting aside the funds until your children attain an age of sufficient maturity to handle a large sum of money (you know, when they turn fifty). Disputes over life insurance proceeds are unfortunately very common. They range from invalidating the designation, to “clawing-back” insurance proceeds to satisfy a child or spousal support claim, to a dispute between two spouses with equally apparent rights to the proceeds. If your affairs are not properly and legally organized, your wishes may end up being trumped by a court decision later on. For example, in Francis v. Brooks, the parties had been married for a long term of twenty-five years. The parties separated in 2012 after an affair of the husband. The husband left the matrimonial home to the wife and moved out. He was diagnosed with terminal cancer in 2013 and, unable to work, returned to the home. The wife bought him out of his share in the home, so that he could have some funds available to him for the remainder of his life. He moved in with his new common law partner and passed away in 2014. Before dying, he designated his common law partner, Ms. Brooks, as the beneficiary of his life insurance and his RRSP. The deceased had never divorced his wife. His wife launched an application in court for dependant relief (support) against the husband’s estate. In the end, in agreeing with the wife, the court not only found that the wife was entitled to receive his assets, but also, his life insurance and RRSP proceeds. Ms. Brooks was not able to prove that she was a spouse (common law) or that she was owed any support by the deceased. In the end, the deceased may have wished to benefit Ms. Brooks, but his wishes did not stand in court, as he failed to make adequate provisions for his wife on his death. In another case, Moore v. Sweet, the deceased was separated from his wife of twenty years. He had designated his first spouse, Ms. Moore, as the beneficiary of his life insurance policy. Ms. Moore agreed to continue to pay the policy premiums after separation. It was a verbal agreement. At his death, Mr. Moore had been residing with his common law spouse for thirteen years, and he had changed the designation of his life insurance policy naming Ms. Sweet as the irrevocable beneficiary of his life insurance proceeds. Unaware of the change, Ms. Moore continued to pay the premiums on the policy. First and second spouse found themselves in court in a dispute over the proceeds. The court found in favour of Ms. Sweet as the designation had been properly made following the requirements under the Insurance Act. In addition, the designation was made irrevocable and in writing, as opposed to a verbal agreement he had entered into with Ms. Moore. The court noted Ms. Sweet had cared for Mr. Moore’s illness until his death, and was in financial need; while Ms. Moore had already received the matrimonial home. Ms. Moore, the disappointed beneficiary, did manage to receive a refund of the premiums paid on the insurance. Insurance Law and designations of beneficiaries are not to be taken lightly. If legal advice is not sought, the law may trump your wishes and promises made “until death do us part”.