When making changes to an estate plan, people sometimes overlook their direct beneficiary designations, for example on life insurance policies, RRSPs or TFSAs. You don’t want to make changes to a will, transfer assets into joint ownership with right of survivorship, and settle assets into a trust, but neglect to update a beneficiary designation. The result may be an unwelcomed surprise to your loved ones, when a beneficiary designation that you have failed to update provides a payout that was clearly not what you intended, and which is inconsistent with the rest of your estate plan.
This was the case in a decision of the B.C. Supreme Court released this week. In Knowles v. LeBlanc 2021 BCSC 482, the Court considered competing claims over the proceeds of a life insurance policy. The dispute was between the deceased’s ex-wife, who was named as the sole beneficiary under the policy, and the deceased’s long-time spouse at his date of death (described as the “disappointed beneficiary”).
The deceased obtained the life insurance policy when he was still married to his first wife, and the records indicated that no change of beneficiary had ever been filed. He separated from his first wife in the late 1980s, and their divorce was finalized in May 1991. He moved in with his current spouse around 1993, and they lived in an exclusive common law relationship until his death in 2019.
The deceased continued the monthly payments on the life insurance policy with automated withdrawals from a joint account which he held with his new spouse. The benefit under the policy was $100,000. Upon the deceased’s death, his spouse received the proceeds of every other life insurance policy that he held, as well as all of his other assets (by right of survivorship).
The Court first considered the intentions of the deceased. The evidence was clear that the deceased maintained feelings of hostility toward his ex-wife. He also became estranged from the two children that he shared with her. It was also clear that he intended to change the beneficiary designation to his spouse and thought he had done so.
While his ex-wife argued that there was no evidence of an intention to change the designation, the Court did not accept this in light of the ex-wife’s complete absence from his life after the divorce, his hostility toward her, and the circumstances which showed a wish to leave all of his property to his spouse.
The Court held that a consent order which was entered in the divorce proceedings involving the deceased and his ex-wife did not operate to prevent his ex-wife from claiming the proceeds of the life insurance policy. It did not include language that the parties clearly relinquished all interest in each other’s estate.
The spouse argued that if the ex-wife was to receive the insurance proceedings then this would result in unjust enrichment. To establish unjust enrichment, the plaintiff must show (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason (such as a contract) for the enrichment.
In Knowles, the spouse suffered a deprivation, as the premiums of the policy were paid from an account that she held jointly with the deceased for many years, and she believed that the deceased had changed the beneficiary designation to her. The ex-spouse would be enriched if she received the proceedings. There was no juristic reason for the enrichment, and there was no basis in the parties’ expectations or public policy to rebut the spouse’s recovery.
The court allowed the spouse’s claim in unjust enrichment, and imposed a remedial constructive trust over the insurance proceedings. The insurance company was directed to pay the insurance proceeds to the spouse.
The court was able to “fix” the deceased’s oversight in these particular circumstances. The spouse had good facts on her side, including good evidence of the deceased’s intention. This may not always be the case for a “disappointed beneficiary.” This also resulted in time, stress and uncertainty for his spouse, which would have been avoided if he had properly updated the beneficiary designation.