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.
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
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.
We blogged about the Ontario Retirement Pension Plan (“ORPP”) some time ago when it was first proposed and introduced. The ORPP will begin on January 1, 2017, and will be fully implemented by January 1, 2020. According to the Ontario government website with respect to the ORPP, studies show that people are not able to save enough money for retirement and that the Canada Pension Plan (“CPP”) is insufficient, stating that the maximum yearly benefit from CPP in 2015 is $12,780 and the average yearly benefit is $7,000.
Both the ORPP itself and the contribution rates for the ORPP will be phased in from 2017 to 2020, as set out in this article from the National Law Review. For instance, the initial implementation of the ORPP in January 2017 will begin with large employers, at a rate of contribution of 0.8 percent by both the employer and employee (for a total of 1.6 percent). This will then be increased to 1.6 percent each the following year and further increased to 1.9 percent each starting in 2019. Similar phasing will take place as medium-sized employers begin the ORPP in January 2018, small employers in January 2019, and employers with registered plans that do not meet the comparability threshold in January 2020. Ontario’s ORPP website also provides a helpful chart describing the phases that can be viewed here.
Last month, Ontario reached an understanding with the federal government that ORPP premiums will be collected through the existing CPP framework. Ontario also delayed the date to begin collecting premiums from large employers who will be included in the first phase of implementation. Although they will be required to register as of January 2017, they will not be required to remit premiums until January 2018.
Once it has been fully phased-in, the contribution rate will be a combined 3.8 percent of pensionable earnings. For an individual earning $50,000.00 per year, for example, who contributed to ORPP for 40 years and retired at age 65, this results in an ORPP payment of $7,138 per year, in addition to CPP, OAS, and other retirement savings.
It is stated that the ORPP is intended to complement existing retirement savings arrangements, not replace them. For many individuals, there will still be a need to make individual plans with respect to retirement saving and planning. As always, it is important to consider you own individual needs during retirement and consult advisors who can help you make and implement a comprehensive plan.
Thanks for reading.
Listen to: Hull on Estates #328 – Rights of Spouses
Today on Hull on Estates, Natalia Angelini and Moira Visoiu discuss the Ontario Court of Appeal’s decision in Carrigan v. Carrigan Estate. A link to the case can be found here.
If you have any questions, please e-mail us at email@example.com or leave a comment on our blog page.
Click here for more information on Moira Visoiu.
We spend the majority of our lives working, saving for retirement and dreaming of success, often defined as the ‘Freedom 55’ plan. Whether you are still paying off student debt and just starting to consider long term investment, or are but a few years away and wondering if you’ve done enough to live the retirement you’ve always wanted, a recent article in the Financial Post may prove useful as it takes a close look at the dilemmas and financial considerations an ‘early’ retirement may bring.
Many of us will face the same dilemmas that Pilot ‘Jack’ faces in the article. After working hard, even on the brink of freedom, we may have to make tough decisions that impact daily lifestyle during retirement and your Estate. The nuances associated with choice in pension benefits and the impact on those we will eventually leave behind us is well explored in the above-noted article, and certainly sheds light on Estate Planning issues you may otherwise have not considered. The number crunching and options analysis faced by ‘Jack’ will become more and more prevalent across our country as the boomer generation proceeds to yet another milestone en masse.
The options available from the Canadian Government to opt for early retirement and the slight percentage benefit to claiming same in 2011 may throw a curveball into your plans. Whatever your current considerations, it is never too early to take a close look at your retirement goals, in particular what benefits will exist on your death and thereafter. An Estate Plan can be in flux, but knowing the bottom lines should help make all your decisions easier.
Thanks for reading,
Nadia M. Harasymowycz – Click here for more information on Nadia Harasymowycz.
In King v. King, an ex-husband brought an application for a declaration that his former wife waived her entitlement to his survivor’s pension by way of a separation agreement that contained a release by the wife of any claim or interest in the pension.
Section 24 of the Pension Benefits Act establishes a joint and survivor pension in the case where a former member has a spouse on the day that the first instalment of the pension is due to be paid. Because the first instalment of the pension was due at the time that the ex-husband was married to his second wife, the pension became a joint and survivor pension.
However, the separation agreement does not resemble the statutorily required Form 3. As such, the ex-husband cannot rely on the Act’s exception that would have been grounds for a declaration that there was a waiver of the wife’s entitlement to the pension. Justice Cornell remarked that “given the mandatory requirement that in order for the waiver to be valid, the prescribed form must be used, Mr. King has found himself in the unfortunate position of being caught in a trap for the unwary”.
To avoid such problems, those drafting separation agreements should be aware of the specific legal requirements regarding particular types of pensions.
Note also that Form 3 was revoked in 2000, so going forward, this is not likely a restriction.
Sarah Halsted – Click Here For More Information About Sarah Halsted
In Nolan v. Kerry (Canada) Inc., 2009 SCC 39 the Supreme Court of Canada considered, inter alia, when costs can be awarded out of a trust fund in the context of a pension plan dispute regarding the employer’s obligations. The pension plan contained defined benefit (“DB”) and defined contribution (“DC”) components. The CA Employees Pension Committee (the “Committee”) sought to have funds paid into the pension fund to the benefit of the DB members only.
In considering when costs are payable out of a trust, the Court noted that there were three categories of cases in the wills and estate context: 1) Where trustees apply to a court to construe the terms of the trust deed so that they may determine the proper administration of the trust; 2) similar cases where beneficiaries of the trust apply rather than the trustees; and 3) where a beneficiary makes a claim which is adverse to other beneficiaries of the trust. In the first two cases costs may rightfully be paid from the trust fund. However, costs will not be paid from the fund in cases that fall under the third category.
The key question was whether the litigation was adversarial or whether it was aimed at the due administration of the trust. Adversarial claims did not qualify for a costs award from the trust fund. In Nolan v. Kerry the litigation was adversarial in nature because it was ultimately about the propriety of the employer’s actions and because the Committee sought to have funds paid into the pension fund to the benefit of the DB members only. The employer was successful and there was no reason to penalize it by diminishing the pension fund surplus, thereby reducing its opportunity for contribution holidays.
The Supreme Court of Canada affirmed the decision of the Ontario Court of Appeal in favour of the employer. The Committee was not entitled to its costs out of the pension fund and costs were ordered against it as the unsuccessful party.
Sharon Davis – Click here for more information on Sharon Davis.