Insurance Trusts and Estate Administration Tax
As a segue from yesterday’s blog (which considered the issue of beneficiary designations of life insurance policies), today’s blog considers issues arising from the characterization of life insurance proceeds as trust assets in the context of an overall estate plan. Life Insurance Trusts can be created for specific purposes where the owner of the policy has clearly defined testamentary intentions respecting the use of the funds.
In his recent presentation at the Six-Minute Estates Lawyer, Robin Goodman noted a recent Saskatchewan case, Re Carlisle Estate, in which the Court considered whether a declaration in a Will creating a life insurance trust had the effect of excluding the proceeds from probate under Saskatchewan legislation. In that case the Court determined that, regardless of a clearly stated intention to the contrary, the appointment of the executor of the estate as the trustee of the insurance trust (and, more importantly, as the designated beneficiary of the insurance proceeds) meant that “no exemption from probate fees can be claimed.” However, in a gloss on this case, the decision in Sun Life Assurance Co. of Canada v. Taylor (also a Saskatchewan case) clarified that, where the insurance proceeds did not vest in the executor as beneficiary (albeit as trustee for others) but, instead, were simply held by the executor in trust for the designated beneficiaries, the insurance proceeds were not to be considered as estate assets.
As Goodman notes in his paper, it is not clear how these decisions will impact the law in Ontario. In any event, the decisions serve to give any estate planner pause to consider how best to structure an insurance trust whether inside or outside of a Will.
David M. Smith