The case begins with a couple, Steven and Anastasia, who were married in 2003. In January 2012 the couple separated, but remained legally married. In 2010, while married, Steven purchased a life insurance policy from Canada Life with a $1 million face value. At the time of separation, Anastasia was named as beneficiary of the policy. As part of a series of ongoing court proceedings between Stephen and Anastasia, which commenced in September 2012, Steven was subject to a consent order that included child and spousal support provisions and required that he maintain Anastasia as the irrevocable beneficiary of the life insurance policy.
Immediately following his separation from Anastasia, Steven re-established a relationship with Evangeline, whom he knew prior to his marriage. In July 2012, Steven moved to British Columbia and frequently travelled to Bellingham, Washington, where Evangeline lived. Evangeline became pregnant in April 2013 and while the couple intended to marry, their plans were delayed because of prolonged divorce proceedings between Steven and Anastasia.
In November 2013 Steve was hospitalized, and shortly thereafter executed a new will together with a change to the beneficiary designation on his life insurance policy. He changed the beneficiary from Anastasia, as the sole beneficiary, to Anastasia (10 percent), Evangeline (53.6 percent) and his two living children (17 and 19.4 percent). Anastasia became aware of the beneficiary change and immediately obtained a court order requiring Canada Life to restore the previous designation listing her as sole beneficiary.
Steven, age 48, passed away on November 23, 2013, with the insurance policy forming the bulk of his estate.
Evangeline filed a dependant’s support claim, with the Ontario Superior Court, on behalf of herself and her newly born child (she was pregnant when Steven passed away). She sought to have the proceeds of life insurance form part of Steven’s estate so they would therefore be available to satisfy a dependant’s relief claim under the Succession Law Reform Act (Ontario). The trial judge agreed and ruled that the proceeds of the life insurance policy would form part Steven’s estate and would not be paid to the named beneficiary.
Anastasia appealed the trial judge’s ruling, asking the Divisional Court to award all of the life insurance proceeds to her as set out in the consent order. Anastasia’s position was that the consent order should be interpreted as a bare trust and Steven did not have the authority to change the beneficiary.
The Divisional Court agreed with the trial judge confirming that Steven remained the owner of the life insurance policy irrespective of the Family Court order requiring Anastasia remain as the named beneficiary. Of significance was the Court’s finding that Steven remained in control of the policy. They found no evidence of any intention to change legal or beneficial ownership of the policy. The court noted that under “Ontario succession law, ‘any amount payable under a policy of insurance effected on the life of the deceased, and owned by him or her,’ is available for satisfaction of dependent support claims.”
The court noted that if Anastasia and Steven had wanted the insurance proceeds to be paid to Anastasia under all circumstances, they should have stated this explicitly. The couple could have referenced the policy proceeds as “security” for the support payments, moved the policy into Anastasia’s ownership or into joint ownership. Without some evidence of their intentions the court is obligated to ensure that dependents are supported.
While Anastasia attempted to claim the position of a creditor of the estate because of the Family Law Act support order and irrevocable beneficiary designation, the Insurance Act “provides that where a beneficiary is designated, the insurance money, from the date of death, is not subject to the claims of the creditors of the insured.” As such, the court concluded that “Anastasia’s interest in the insurance proceeds was not that of a creditor, but rather as a dependant, along with her children, and Evangeline and James.”
The Divisional Court also concluded that Evangeline and her child, conceived with Steven and born after his death, were dependant on Steven. They observed that Steven’s attempt to provide adequately for Evangeline and her child was circumvented by the court order requiring Canada Life to restore the original designation. The Divisional Court confirmed Evangeline and her child’s entitlement for support from Steven’s estate.
Of significance is the fact that there are situations where an individual could be viewed as having two spouses for support purposes, creating significant financial obligations. Arrangements of this nature require careful attention to both financial and moral responsibilities when undertaking estate plans. If a life insurance policy is intended to represent future support for one particular spouse or group of dependants, it may be wise to ensure ownership of the policy remains with the intended beneficiary or in joint title.
Plans should reflect the objectives of the client, but more importantly the plans need to be well documented so that the intentions of the parties are well known and alternative interpretations will be limited.