A Guide to Section 72 Dependant Support and Pre-Retirement Death Benefits
When you advance a claim for dependant support, you must consider which assets satisfy that claim. Section 72 of the Succession Law Reform Act (“SLRA”) lists specific assets and transactions. The court may “claw back” these assets and deem them part of the estate to determine its total value.
Section 72(1)(g) of the SLRA includes any amount payable under a designation of beneficiary as a ‘section 72 asset.’ This category includes pension plans, retirement savings plans, retirement income funds, and life insurance policies.
Understanding Pre-Retirement Death Benefits
A “pre-retirement death benefit” is a specific type of employee pension plan. It provides a payment to a person’s spouse if the employee dies before the first pension installment is due. Section 48 of the Ontario Pension Benefits Act allows an employee to designate a beneficiary if there is no spouse. Stated simply: a plan member can designate anyone as the beneficiary, but a married spouse holds priority interest.
The Court has considered whether a pre-retirement death benefit is a section 72 asset in two recent matters. These cases include Cotnam v. Rousseau (2018) and Earl v. McAllister (2021). The latter case eventually reached the Divisional Court on appeal.
The Ruling in Cotnam v. Rousseau
In the 2018 Cotnam v. Rousseau decision, the Court addressed whether marital status—rather than a specific designation—excludes the benefit from section 72. Ultimately, the Court decided the benefit is a section 72 asset. Justice De Sa noted that subsection 48(6) creates a statutory priority for spouses. However, he disagreed that this priority shelters the benefit from SLRA “claw back” provisions.
Justice De Sa argued that the SLRA balances assets between spouses and other dependants. Ignoring this benefit could skew the equitable distribution. In many cases, this benefit is the only asset available to the deceased. He concluded that the “claw back” helps the court determine the estate’s value. While a spouse might still keep the benefit, the court must access the asset to ensure an equitable result.
The Conflict: Earl v. McAllister
One year later, the Court dealt with a US-administered pre-retirement death benefit in Earl v. McAllister. In this instance, Justice Pattillo held that the benefit is not a section 72 asset. He disagreed with the Cotnam conclusion.
Justice Pattillo found that Section 72(1)(g) of the SLRA clearly only includes amounts payable under a designation of beneficiary. Since the US Pension payment flowed to the respondent as a spouse rather than a designee, the law did not capture it. The Divisional Court upheld this portion of the decision on appeal.
Future Arguments for Estate Litigation
The Ontario Divisional Court decision seemingly settled the issue. However, two legal arguments may still remain for practitioners:
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Designation Flexibility: The Ontario Pension Benefits Act allows for a different beneficiary if no qualifying spouse exists. It is unclear if US legislation offers this same flexibility. This difference might distinguish the two cases.
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The Role of Marital Status: If marital status excludes the benefit from section 72, what happens when there is no qualifying spouse? The asset might then become a section 72 asset. Future litigation must decide how an asset can shift in and out of section 72 based on external factors.