Rehel v Methot: Life Income Funds and Spousal Entitlements

February 5, 2018 Umair Beneficiary Designations, Estate Planning, Executors and Trustees, Litigation, Pension Benefits, Trustees, Wills Tags: , , , , 0 Comments

In the recent case of Rehel v Methot, 2017 ONSC 7529, the Honourable Justice Gomery was asked to provide directions regarding the entitlement to money held in a life income fund account owned by the deceased testator.

Background Facts

William (the “Deceased”) made a Last Will and Testament one day before he committed suicide. At the time of his death, the Deceased held a life income fund account (the “Account”) at Scotiabank. The Deceased’s spouse, Sharon (“Sharon”) was named as the beneficiary of the Account at the time that it was opened in 2013.

However, in his Will, the Deceased directed his Estate Trustee to use the funds in the Account to pay off any debts owing at the time of the Deceased’s death. The Estate Trustee took the position that the designation under the Will replaced the prior beneficiary designation.

Application of Provincial Pension Legislation

Before engaging in a discussion over which designation should prevail, the first question before the Court was whether Sharon was automatically entitled to the proceeds of the Account as the Deceased’s surviving spouse.

The Deceased and Sharon were married in Quebec in 2005, and moved to Ontario in 2008. However, the money in the Account was from a pension plan registered in Quebec. The Court was asked to consider if provincial pension legislation in Ontario or Quebec was applicable to the distribution of the Account.

Subsection 48(1) of the Ontario Pension Benefits Act states that if a member who is entitled to a deferred pension under a pension plan dies before payment of the first installment, the surviving spouse of the person is entitled to receive payment. However, under subsection 48(3) of the Act, a spouse is not automatically entitled to the proceeds of a deferred pension if the parties are “living separate and apart” at the time of death.

The Estate Trustee argued that subsection 48(3) applied, and adduced evidence that suggested that the parties were separated as of the time of the Deceased’s death. Sharon filed an affidavit disputing that she had separated from the Deceased, and asserted that she and the Deceased had only discussed the possibility of a separation at the time of his death.

The Estate Trustee filed additional affidavit evidence that led Justice Gomery to conclude “beyond a doubt” that the marriage had broken down and that the parties were negotiating their separation from each other. Justice Gomery thus concluded that the parties were separated under Ontario law, and that Sharon was not automatically entitled to the proceeds under the Pension Benefits Act.

Another question before the Court was whether Quebec law applied to the question of Sharon’s entitlement to the Account. Under Quebec pension legislation, the automatic right to spousal benefits is “terminated by separation from bed and board.” The Estate Trustee asserted that the application of Quebec law made no difference, whereas Sharon asserted that “separation from bed and board” meant something different than “living separate and apart.”

Justice Gomery noted that the law of another province is “foreign law,” and must be proved. Absent such proof, Justice Gomery held that the Court must assume that the foreign law is the same as Ontario law. Thus, Justice Gomery concluded that Sharon was not entitled to the death benefit under the Deceased’s pension plan by right.

Next Question: Which Beneficiary Designation Prevails?

Given Justice Gomery’s conclusion that Sharon was not entitled to the Account by operation of statute, the Court concluded that Sharon would only be entitled to the funds in the Account if she was the designated beneficiary as of the Deceased’s death.

In tomorrow’s blog, I will discuss Justice Gomery’s discussion of the terms of the Deceased’s Will, and whether the direction to the Estate Trustee overrode the earlier designation in Sharon’s favour.

Thank you for reading,

Umair Abdul Qadir

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