Tag: insurance policy
Life insurance can be a useful tool in estate planning to offset tax liabilities and supplement the assets that may otherwise be available to leave to a surviving spouse or other family members.
An article by Michael Grob, featured in the most recent issue of the Step Journal, highlights the potential of life insurance in estate planning, with a focus on the utility of insurance within the context of high net worth individuals who have assets in multiple jurisdictions.
Last year, the Canadian Life and Health Insurance Association released statistics from 2014, which suggests that the size of Canadian life insurance policies continues to grow, despite prolonged low interest rates and slower than average investment growth. During 2014, the value of life and health insurance policies increased by 11.5% to $721.2 billion. While these figures suggest that the use of life insurance in estate planning is increasing, Mr. Grob states that it is less commonly used to its potential in the cross-border context.
There are many reasons why life insurance policies are such an effective estate planning tool, and why they may be especially suitable when cross-border issues may also present themselves. These reasons, which are highlighted within Mr. Grob’s article, can be summarized as follows:
- Availability of liquid funds available for use by an estate upon death, including for the satisfaction of foreign taxes and/or inheritance tax, where there may otherwise be complications in obtaining probate that will delay the payment of these estate liabilities;
- Tax concessions generally associated with life insurance (in Canada, life insurance proceeds are not typically taxable, nor are they normally subject to probate fees when a designated beneficiary other than the estate is identified);
- Accessibility to life insurance in other jurisdictions, even if local access is limited, through international providers;
- Variety of different options regarding policies and their terms; and
- Equalization of inheritances left to survivors; for example, in circumstances in which a business will be left to one child and the testator wishes to establish a life insurance policy to benefit the other(s) or to provide a corporation with sufficient funds to buyout the business interests left to one or more shareholders.
With all of the benefits associated with the use of life insurance policies, it is important to consider the potential of life insurance in achieving clients’ objectives when assisting them with estate planning.
Thank you for reading.
For my ‘Thursday Throwback’ post, I turn to an important 1981 decision from the High Court of Justice considering section 72 of the Ontario Succession Law Reform Act.
In Moores v. Hughes, an application was brought by a divorced wife for dependant support pursuant to Part V of the SLRA.
As a result of certain debts owing at the time of the Deceased’s passing, his net estate amounted to $40,000. However, as there were assets that passed outside of the Deceased’s Estate in the approximate amount of $365,000, comprised primarily of insurance policies, a joint bank account and a pension plan, a thorough analysis of section 72 of the SLRA, was undertaken. A helpful Hull & Hull LLP podcast on section 72 assets can be found here.
Often referred to as the ‘claw back’ provision, section 72 deems certain transactions to be included as testamentary dispositions as of the date of death and included in the value of an estate and available to be charged for payment for dependant support purposes. As the addition of section 72 had only recently been enacted, Justice Robins stated that the, “…section makes a significant change in the law as it stood before the enactment of the Succession Law Reform Act…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”.
Based on the Court’s interpretation of the (then) newly enacted section 72, the insurance policy, joint bank account, and pension plan, were all included in the estate and thus made available for dependant support.
Despite this interpretation, there remains estate planning techniques available to ensure that certain jointly held life insurance policies fall outside of the claw back provision of the SLRA, as addressed in the Ontario Court of Appeal decision in Madoire-Ogilvie (Litigation Guardian of) v. Ogilvie Estate.
A recent decision of the Ontario Superior Court of Justice considers life insurance as a Succession Law Reform Act (“SLRA”) s. 72 asset, and the circumstances in which a beneficiary or estate trustee will be ordered to make a support payment personally.
In Bormans v Estate of Bormans et al, 2016 ONSC 428, the Applicant (“Gabriele“), made a claim for dependant’s support under Part V of the SLRA. Gabriele had been married to John Bormans (the “Deceased”) for 38 years, until their divorce in 2010. They had two children together, Jessica and Amanda.
The court order granting Gabriele and the Deceased’s divorce provided for spousal support payments of $500 per month from the Deceased to Gabriele. At the time of the divorce, the Deceased made a warranty to Gabriele that she was the beneficiary of his group life insurance policy which secured his support payments on his death. This term was not included in the court order.
After the Deceased’s death in March 2014, Gabriele enquired of the Deceased’s group life insurance company and was advised that the employer had terminated that coverage. After making a claim in writing for support under the SLRA, Gabriele learned that Jessica had received $70,000 in insurance proceeds as the beneficiary of a separate insurance policy on the Deceased’s life. Jessica was also named as estate trustee in the Deceased’s Will.
Prior to being served with Gabriele’s application for dependant’s support, Jessica had spent a portion of the insurance proceeds. However, she continued to spend the proceeds after she had been served with Gabriele’s application, despite her obligation under s. 67(1) of the SLRA, not to make any distribution of the deceased’s estate.
Usually, if the beneficiary named in a life insurance policy is someone other than the estate, the proceeds pass outside of the estate. However, according to s. 72 of the SLRA, such assets can be deemed part of the estate for the purpose of ascertaining the value of the estate and for funding an order for support of dependants. Therefore, according to s. 72(1)(f) and (f.1), the court found that the life insurance proceeds paid to Jessica were to be deemed part of the Deceased’s estate.
The court found that Gabriele was a dependant of the Deceased under s. 57 of the SLRA and that Jessica was not a dependant. The quantum of support to which Gabriele was entitled was held to be $40,000. Although less than the full amount of the life insurance policy, the court held that the portion of the proceeds spent by Jessica personally prior to notice of Gabriele’s application was not deemed to be available to fund the dependant’s support, nor were the amounts expended for the purpose of her obligations as estate trustee. However, because Jessica was the beneficiary of the funds, and had failed to comply with her obligations as estate trustee under s. 67(1), she was required to personally pay the award of $40,000 to Gabriele.
Thanks for reading.
The Svalbard Global Seed Vault (SGSV), also known as the Doomsday Vault, is a secure seedbank located on a Norwegian island far within the Arctic Circle. The purpose of the SGSV is ‘to provide insurance against both incremental and catastrophic loss of crop diversity held in traditional seed banks around the world.’
The safety of the world’s 1,400 crop diversity collections has been a concern for many years due to risks including poor agricultural management, equipment failures, war, underfunding and natural disasters. The SGSV provides a duplication of seed samples stored in genebanks worldwide, acting as a sort of agricultural ‘spare tire’, if you will.
The SGSV was entirely funded and built by the Norwegian government and took its first delivery of seeds just over a year ago. The vault is situated 390 feet inside ‘Platåberget’, a sandstone mountain on Spitsbergen Island chosen based on its tectonic inactivity. Inside the vault, the seeds are sealed in specially designed four-ply foil packages, which are then placed inside sealed boxes and stored on shelves inside storage rooms. Refrigeration units (powered by locally mined coal) cool the seeds to –18 degrees Celsius, and in the event of equipment failure, it would take weeks for the temperature to even reach that of the surrounding sandstone. The area’s natural permafrost would further prevent the samples from thawing. Even in worst-case climate change modeling, the vault rooms will remain naturally frozen for up to 200 years. Estimates suggest that the SGSV has the ability to conserve a capacity of over 2 billion seeds for hundreds, if not thousands of years.
Now, how’s that for global estate planning?
Jennifer Hartman, guest blogger
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
Listen to Pre-probate Checklist
They then wrap up their ongoing discussion about some useful steps to remember when administering an estate.
Using Insurance Instruments for Effective Succession Planning – Hull on Estate and Succession Planning Podcast #61
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During Hull on Estate and Succession Planning Episode #60, Ian and Suzana discuss how term policies and whole life policies can apply to succession planning.
They cover three important aspects to consider when reviewing your insurance policies, especially in a separated spouse situation including the funding of support obligations, the designation of the policy’s beneficiaries, and how the policy will be funded after death.
Estate Planning Considerations in the Context of Married and Unmarried Spouses – Hull on Estate and Succession Planning Podcast #54
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During Hull on Estate and Succession Planning Episode #54, Ian and Suzana discuss how to avoid Will drafting problems when creating beneficiary designations for insurance trusts.
They also discuss the importance of including funeral arrangements in your Will, and the various Provincial approaches to the revocation of wills after marriage and after a divorce.