In advancing a claim for dependant support against an estate, one of the key considerations is what assets are available to satisfy the claim. Section 72 of the Succession Law Reform Act (“SLRA”) lists certain assets and transactions which may be clawed back and deemed to form part of the estate, for purposes of ascertaining its value.
Section 72(1)(g) of the SLRA includes any amount payable under a designation of beneficiary as a ‘section 72 asset’. This includes, among other things, pension plans, retirement savings plans, retirement income funds, and life insurance policies.
A “pre-retirement death benefit” is a particular type of employee pension plan which provides for the person’s spouse to receive a payment, if the employee dies before payment of the first installment of the pension is due. The Ontario Pension Benefits Act (section 48) adds that a plan member (i.e. an employee) may designate a beneficiary to receive the benefit, who would then receive the benefit if there is no spouse. Stated otherwise, a plan member can designate anyone as the beneficiary of the plan, but, if married, the spouse has a priority interest.
The question of whether a pre-retirement death benefit is a section 72 asset has been considered by the Court in two matters in recent years: Cotnam v. Rousseau, 2018 ONSC 216; and Earl v. McAllister, 2021 ONSC 4050 (CanLII), the latter having been appealed to the Divisional Court.
In Cotnam v Rousseau, a 2018 decision, the Court considered the argument that as the benefit flows from marital status, rather than designation, it should not be captured by section 72. However, the Court ultimately decided that it is a section 72 asset. Justice De Sa wrote as follows:
[34] 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 pre-retirement death benefits, I do not agree that this spousal priority shelters pre-retirement 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.
[35] On the contrary, the provisions of the SLRA specifically contemplate a balancing of the assets between spouses and other dependants (see section 62 of the SLRA).[1] To ignore the pre-retirement death benefit altogether would not only be arbitrary, but it may unduly skew the “balancing” envisioned under section 62 of the SLRA. The purposes of the SLRA could easily be thwarted altogether if the Respondent’s interpretation were accepted. In many instances, the pre-retirement death benefit may be the only asset available to the deceased at the time of death.
[36] On this point, consider a situation where the deceased recently married, and has two dependant children from a previous marriage. The primary asset upon death is the pre-retirement death benefit with a value of five million dollars. The estate itself has no other meaningful assets. If the Respondent’s position were correct, the judge in determining an “equitable” distribution would not be entitled to apportion that five million dollar pension towards the dependant children. The absurdity of this result seems evident. Even without section 72(g) of the SLRA, the dependant children would likely have a claim to a portion of these funds based on pure equitable principles (constructive trust).[2]
[37] This is not to say that the “claw back” provisions of the SLRA must necessarily interfere with pension benefits paid to a spouse. Rather, the “claw back” simply assists the court in determining the value of the estate when awarding the quantum of the relief. Ultimately, the “spouse” may still retain the entire pre-retirement death benefit at the conclusion of a dependant’s relief application. But a court is entitled to access this asset if necessary to ensure an equitable distribution.
[38] Accordingly, for the purposes of calculating the value of the estate, I will include the value of the pre-retirement death benefit.
One year later, the Court dealt with the same question, but with respect to a US-administered pre-retirement death benefit, in Earl v. McAllister, 2019 ONSC 7288 (CanLII), <https://canlii.ca/t/j46lc>. In this case, Justice Pattillo held that a pre-retirement death benefit is not a section 72 asset, writing:
[26] I do not agree with the conclusion in Cotnam. Section 72(1)(g) of the SLRA is clear in its wording and only includes amounts payable under a designation of beneficiary. The amount payable under the pre-retirement Surviving Spouse benefit in the US Pension is not pursuant to a designation of beneficiary but rather to the Respondent as the surviving spouse. Given the clear wording of s. 72(1)(g), an explicit exclusion of the surviving spouse benefit is not required. Further, the “balancing” required by s. 62 is something that occurs after the net assets of the estate have been identified. It is not used to determine inclusion.
This decision was appealed to the Divisional Court, which upheld the portion of Justice Pattillo’s decision concerning the pre-retirement death benefit.
It would seem that the issue has been put to rest, given that we have an appellate decision from the Ontario Divisional Court. However, with due respect to the Judges cited here, perhaps two arguments yet remain:
- The Ontario Pension Benefits Act allows for the designation of a beneficiary other than a spouse, where there is no qualifying spouse with a priority interest. It is unclear whether the US Pension legislation has the same option for a designation of beneficiary. Perhaps this is a distinguishing factor between the two decisions.
- If the factor that excludes pre-retirement death benefits from being a section 72 asset is that the benefit is payable based on marital status, not designation of beneficiary, what happens in the situation when there is no qualifying spouse? Arguably, the asset would then become a section 72 asset. Perhaps this is an issue that has yet to be adjudicated, namely, how can the same asset sometimes be captured by section 72 of the SLRA, and sometimes not, due to external factors?