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Irrevocable beneficiary designation is not a trust

The recent Divisional Court case of Dagg v. Cameron Estate, 2016 ONSC 1892 (Div. Ct.) demonstrates yet again the potentially broad scope of an order for dependant’s support.

Facts

At the time of his death, the deceased was living with his new spouse, who was eight months pregnant with his child. He was in the midst of divorce proceedings from his former spouse, and was subject to a consent temporary order which included child and spousal support provisions, and which provided that he maintain his former spouse as irrevocable beneficiary of his life insurance policy. Immediately prior to his death (but after entering into the consent order), he had changed the designation to make his new spouse a 50% beneficiary of the policy. His former spouse had been successful in obtaining a court order that he restore the beneficiary designation, in accordance with the earlier consent order.

The deceased made his new spouse the sole beneficiary of his will. After his death, she brought a dependants’ support claim on her own behalf and on behalf of her new born child and sought an order that the proceeds of the life insurance policy were deemed part of the estate, pursuant to s. 72 of the Succession Law Reform Act (“SLRA”), and therefore available to satisfy a dependant’s support claim.

Following a trial, the application judge determined that the $1 million proceeds of the life insurance policy constituted assets of the estate pursuant to s. 72(1)(f), which provides that “any amount payable under a policy of insurance effected on the life of the deceased and owned by him or her” is to be deemed part of the estate for dependant support purposes.

Reasons of the Divisional Court

The former spouse appealed to the Divisional Court, arguing that the trial judge erred in finding that the deceased remained an “owner” of the policy within the meaning of s. 72(1)(f). She submitted the consent order that he maintain the policy for her benefit deprived him of ownership rights, and effectively created a bare trust, with the deceased as trustee and the first wife as beneficial owner of the policy.

The Divisional Court disagreed, and upheld the trial judge’s finding that the deceased remained an owner of the policy despite the family court order to retain his former spouse as beneficiary. There was no evidence either of an intention to change either legal or beneficial ownership of the policy. The court held it was significant that the deceased retained control over the policy, control being one of the indicia of ownership:

“Whether made under s. 34 of the Family Law Act or s. 15.2 of the Divorce Act, and whether temporary or final, the orders could be varied or terminated based on changed circumstances. Nor would the consents underlying the orders have deprived Stephen of the ability to subsequently seek a variation or termination of the orders.” (at para. 21)

The court also found that the consent orders did not make the former spouse a “Creditor” within the meaning of s. 72(7) of the SLRA, which provides that “this section does not affect the rights of creditors of the deceased in any transaction with respect to which a creditor has rights.”

The court held that the former spouse is a creditor of the estate in the sense that she has a claim for future child and spousal support. However, such a claim has no priority over the claims of other dependents, unless she is a secured creditor with a right to realize on her security. The former spouse was unable to prove that the irrevocable beneficiary designation created a security interest in the Policy, given the absence of any evidence of the parties’ intentions to do so.

Analysis

This case demonstrates the power of a dependant’s support claim to circumvent past actions of a deceased, whether intended or court ordered, which would otherwise remove money from the estate and from the reach of a dependant. As the Divisional Court indicated, citing the case of Moores v. Hughes (1981), 1990 CanLII 6975 (ON SC), 74 O.R. (2d) 42 (H.C.):

“Manifestly, the section was intended to ensure that the maintenance of a dependant is not jeopardized by arrangements made, intentionally or otherwise, by a person obligated to provide support in the eventuality of his death. It is designed to alleviate the hardship that can be visited on a dependant by causing money or property to pass directly to a beneficiary (donee or joint tenant) and not as part of the estate.”

The purpose and scope of s. 72 is not diminished merely because, prior to death, the policy was subject to a court ordered beneficiary designation.

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