Estates & Wills & Trusts

Align beneficiary designations to reduce litigation risk

By AdvocateDaily.com Staff

Testators can minimize the chance of their estates ending up in litigation by aligning their beneficiary designations, Toronto trust and estate litigator Felice Kirsh tells AdvocateDaily.com.

Kirsh, a partner with Schnurr Kirsh Oelbaum Tator LLP, says a recent decision by the Court of Appeal for Ontario is a reminder of the risks for all parties when competing beneficiary claims end up in court.

“The decision can go either way,” she says. “My takeaway is that you have to align all of your documents. The designations in your will, your RRSPs and your life insurance should all match up.

“Check everything; if you have a separation agreement or a marriage contract, make sure those line up too,” Kirsh adds.

The case involved two women fighting over the proceeds of the deceased's life insurance policy.

A majority of Ontario’s top court ruled in favour of the woman who lived with him at the time of his death, despite the fact that the other woman, his ex-wife, paid all of the premiums and was originally listed as the beneficiary of the policy as part of an oral agreement made after their separation.

A trial judge initially sided with the ex-wife, but the appeal court overturned the decision, ruling that the man provided a “valid juristic reason” for his common-law partner to receive the life insurance proceeds by designating her as the policy’s irrevocable beneficiary, defeating the former wife’s claim of unjust enrichment.

A dissenting member of the appeal court panel said that while a beneficiary designation can constitute a juristic reason for enrichment, he would have ruled in the ex-wife’s favour because the earlier agreement with her meant that the irrevocable designation was no longer the deceased’s to make.

Although the common-law partner ultimately came out on top, Kirsh says the dissent and the trial decision shows what a lottery that litigation can be.

“When you have to start looking at how the documents go together, which one supersedes another, how various clauses interact, and then add in the oral evidence, you generate a lot of facts,” she says. “People worry about equities, human nature comes in, and you can get different results.”

Still, Kirsh acknowledges that it can be a difficult process for people to reconcile all their testamentary documents. Estate planning often involves the co-ordination of multiple professionals, such as lawyers, accountants and insurance brokers — each may be working independently, not knowing exactly what the others are doing, she notes.

Human error can also come into play, according to Kirsh, who has handled cases on behalf of clients whose updated beneficiary designations were not properly recorded by pension or insurance company administrators.

“People don’t want to double- and triple- check; that’s human nature. It’s boring, meticulous work, but it can have significant ramifications if not done properly,” she says.

There can also be no guarantees that diligent planning will entirely eliminate the risk of an estate challenge from a disgruntled potential beneficiary. That’s especially true in the current era, with complex mixed-family arrangements more common than ever, adds Kirsh.

“Many people have divorced and had significant common-law relationships, so this is something that is going to come up more and more,” she says.

In cases that do proceed to court, Kirsh says both sides should strongly consider their settlement options to reduce risk exposure.

“When you’re talking about designations on life insurance or RRSPs, there’s no middle ground. The designation will either be effective or not, leaving a big winner and a big loser,” she says.

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