Estate Assets in Dependant Support Claims and Pre-Retirement Death Benefits
In my earlier article entitled, “When can a person obtain financial support from an estate?”, I reviewed some common questions relating to dependent support claims. In this article, I discuss what assets can form part of the estate for the purpose of a dependent support claim, as well as a recent decision that has significantly expanded the scope of those assets to include pre-retirement death benefits.
Estate Assets under Section 72 of the Succession Law Reform Act
The Succession Law Reform Act (“SLRA”) creates a separate regime as to what is and is not included in a deceased’s estate when there is an application for dependant support. Section 72 of the SLRA, also known as the “claw-back” provision, provides that certain assets that would otherwise not form part of an estate are deemed to be part of a deceased’s estate for determining dependant support claims. In particular, courts can consider and use the following “non-estate” assets to determine the appropriate amount of support:
(a) gifts made by the deceased in contemplation of death;
(b) money deposited in an account in the name of the deceased in trust for another or others with any bank, savings office, credit union or trust corporation, and remaining on deposit at the date of the death of the deceased;
(c) money deposited in an account in the name of the deceased and another person or persons and payable on death under the terms of the deposit or by operation of law to the survivor or survivors of those persons with any bank, savings office, credit union or trust corporation, and remaining on deposit at the date of the death of the deceased;
(d) any disposition of property made by a deceased whereby property is held at the date of his or her death by the deceased and another as joint tenants;
(e) any disposition of property made by the deceased in trust if the deceased had a right to revoke the disposition;
(f) any amount payable under a policy of insurance effected on the life of the deceased and owned by him or her;
(f.1) any amount payable on the death of the deceased under a policy of group insurance; and
(g) any amount payable under a designation of beneficiary under Part III of the SLRA
Pursuant to subsections 72(1)(f) and 72(1)(g), amounts payable under a life insurance policy or under a designation of beneficiary can be clawed back into the estate. In the recent Ontario Superior Court of Justice decision, Cotnam v. Rousseau, the court held that pre-retirement death benefits1 can also be clawed back into the estate.
Cotnam v. Rousseau, 2018 ONSC 216
In this case, the Applicant (“Shelley”), a child of the deceased, made a claim for dependent support under section 58 of the SLRA. Shelly suffered from developmental delay and remained a dependant of the deceased into her adulthood. The estate had a nominal residual estate value and the main issue before the court was whether the deceased’s pre-retirement death benefit, valued at $368,288.53, could be “clawed” back into the estate pursuant to section 72. The Respondent was the deceased’s second-wife who, according to the Pension Benefits Act (“PBA”), was the recipient of the pre-retirement death benefit based on her status as the deceased’s “spouse”.
The Applicant argued that pre-retirement death benefits constitute an “amount payable under a designation of beneficiary” as set out in section 72(1)(g) and should therefore be included in the estate and used for calculating her claim. On the other hand, the Respondent resisted inclusion of the benefit on the basis of section 48(6) of the PBA, which provides that if the member has a spouse at the time of his or her death, then the spouse has priority and is to receive the benefit over a designated beneficiary. Thus, the Respondent argued that she was entitled to the benefit based on her status as a “spouse”, not as a “designated beneficiary” (even though she also happened to be the designated beneficiary under the pension plan).
There was only one prior decision that considered the interaction between section 72 and spousal entitlement to pre-retirement death benefits. In Carrigan v. Carrigan (“Carrigan”), it was held that where an individual is entitled to death benefits as a spouse and not as a designated beneficiary, the death benefit cannot be clawed back into the estate.2 Notwithstanding the court’s acknowledgement of the conclusion in Carrigan, Justice de Sa decided that he was not bound by it. Justice de Sa wrote:
“While I acknowledge the Respondent’s position has support in the jurisprudence, I disagree with this interpretation of the interaction between section 48 of the PBA and section 72 of the SLRA. While subsection 48(6) clearly creates a statutory priority between a “spouse” and other designated beneficiaries with respect to preretirement death benefits, I do not agree that this spousal priority shelters preretirement death benefits paid to a spouse from the “claw back” provisions of the SLRA. If Parliament intended such an exception to apply to the pre-retirement death benefit, they would have been explicit in this regard.”
Instead, Justice de Sa emphasized the concept of “equitable” distribution. He referred to section 62 of the SLRA, which provides a list of factors for the court to consider in determining the amount and duration of dependant support. He found that the purpose behind this section was to aim for a balancing of the deceased’s assets between a spouse and other dependants. In his view, an exclusion of pre-retirement death benefits from the estate would not only be arbitrary but also unduly skew the “balancing” purpose of this section. Moreover, excluding pre-retirement death benefits from being clawed back by section 72 based on spousal priority could result in unfair outcomes in situations where an individual was only recently married prior to his or her death and had dependant children from a previous marriage and the primary asset upon his or her death was a pre-retirement death benefit. In the court’s view, allowing the spouse to have all of the preretirement death benefit in these situations would be absurd if there was a claim for dependant support.
As a final point, Justice de Sa added that this decision does not mean that section 72 will necessarily interfere with all pension benefits paid to a spouse. A spouse may ultimately retain the entire pre-retirement death benefit at the conclusion of a dependant’s relief application if the circumstances warrant it. However, this interpretation of the PBA and SLRA permits a court to access the pre-retirement death benefit if necessary to ensure an equitable distribution of assets.
Implications for the Future
This decision has garnered criticism from within the legal community with respect to the uncertainty it has created in the treatment of pre-retirement death benefits in dependant support applications. Prior to this decision, it was believed that a spouse of a deceased who had a preretirement death benefit would automatically receive the benefit because section 48(6) of the PBA provides that designated beneficiaries do not receive the benefit if there is an eligible spouse – the spouse’s entitlement to the death benefit arises from the operation of the PBA rather than a designation by the deceased. Going forward, a spouse can no longer assume that he or she will receive such a benefit, especially if the deceased has other dependants.
Another major take-away from Cotnam is the emphasis on equitable distribution. Justice de Sa’s final point was that the claw-back provision does not necessarily mean that a spouse will not be entitled to any pension benefits. Instead, section 72 allows the court to access these assets when there is a dependant support application in order to ensure an equitable distribution of assets. This suggests that, going forward, the door may be open for other types of assets not expressly listed under section 72 to be clawed back into a deceased’s estate in order to ensure an equitable distribution of assets among dependants.
*The author wishes to acknowledge the assistance provided by Carling Chan, student-at-law with Boghosian + Allen LLP, in the preparation of this article.
1 A benefit under a pension plan that is paid out to another individual if the plan member dies before reaching the age of retirement.
2 2011 ONSC 585 at para. 81-82, varied on other grounds in 2012 ONCA 736.