Child And Spousal Support Obligations
After Death
by H.
Christina MacNaughton
for Parent Quarterly Magazine
We all hope that we will
live long enough to complete the parental task of raising our children to
adulthood and independence, but sometimes parents die before the children are
grown. We never know which spouse will outlive the other. Families use estate
planning and insurance policies to provide the funds for the other parent to
carry on if the breadwinner dies prematurely.
When
families separate or divorce, they must consider ;the same issues, but often in
more detail because support agreements and Court orders have defined the amount
of the financial obligation. Here are some of the commonly asked questions.
"I just separated
from my spouse, and I don't want to leave him/her anything in my will. Can I
leave everything to the children instead?"
In Ontario
Failing to provide for
your separated spouse in your Will risks the court making awards from your
estate that effectively rewrite your Will for you if you die before those
support rights have been defined by court order or separation agreement.
If you have no major
assets and are not employed outside the home, you will not be taking much risk
if you make a new Will leaving nothing to your spouse. However, if you have
major assets or are the bread-winner, prematurely eliminating your spouse from
the Will, creates a high risk that the Will would be contested successfully.
If you are a major
breadwinner, wait until the support rights have been defined, and then you will
know what provisions you will need to make in your estate planning for the
other spouse, if any.
"My spouse has
released all rights to spousal support in the separation agreement. Is that
enough to free me to leave all my money to someone else?"
Not quite; the right to
claim as a dependent against your estate arises not just as a support right
under family law legislation. The dependent's relief claims and rights to
inherit under the Succession Law Reform Act also have to be released
specifically in the agreement.
"If my court
order or separation agreement doesn't specify that support payments end when I
die, what happens then?"
If you were paying
support to your (ex)spouse under any order or agreement at the time of your
death, he or she will have a claim against your estate to continue those payments,
or to receive an adequate lump sum to compensate for the loss of that weekly or
monthly payment.
Ontario
The claim for an award
from your estate would be made under the Succession Law Reform Act as what is
called a "dependent's relief claim". In deciding how much money your
dependent (ex)spouse or child should receive from your estate, the court will
consider the amount of support you were paying at the time of your death as
well as any another property they receive as a result of your death under
insurance policies or from joint ownership of your residence.
"I remarried and
have a child by my new spouse. I want to leave them all of my estate. Won't the
court favour them over my former spouse and older
children?"
No. If you only take care
of some of your dependents, the court will look at the needs of all your
dependents, and will apportion your estate among them all.
"Will naming my
ex-spouse and older children the beneficiaries of my group insurance policy
from work free up the rest of my estate to be left to others?"
Maybe, but that's hard to
know in advance. Is the death benefit enough? Is it too much? Support
obligations are usually in the form of a monthly or weekly payment. For
children that obligation is generally over by the time the child is 23 years
of, sometimes sooner. The obligation to pay spousal support may last as long as
your ex-spouse lives.
Expressing a monthly
payment as a lump sum is a task for actuaries. With every passing month and
each support payment made, there is less to pay in the future. Suppose that you
are now paying child support of $1,200 per month for two children, aged 7 and
10. The obligation is for $600 per child per month, or $7200 per year per
child.
To make this very simple
we'll make three assumptions. First, we'll leave out any calculation of cost of
living increases or variations of support to account for the children's
changing needs in the future, and assume the amount is the same from the
beginning to end. Second, we'll ignore the fact that an actuary would discount
the total value of the payments in arriving at the present (commuted) lump sum
value. Third, we'll also assume that each child has just attained his present
age and that support ends at age 23.
Given those three assumptions,
you would pay support for the younger child for another 16 years, and 13 years
for the older child. Total payments would be $115,200 for the younger child and
$93,600 for the older child. The grand total of the obligation today is
therefore $208,800.
Perhaps you have enough
to cover that from your group life insurance policy. If so, then there would
arguably be enough life insurance to take care of the support so that you could
do what you liked with the rest of your estate in your Will. If not, then you
would need to leave more of your estate to take care of those children.
Before depending on your
group insurance to provide for the support obligation, ask yourself whether you
will have that job and that group coverage for all the children's dependent
years. You would face losing that policy along with your job if your company
downsizes, and you are too old or have a medical rating that makes replacement
insurance beyond your budget, and you have to rearrange your estate plans to
cope with the situation.
On the other hand, if you
use your group policy, you can wind up overinsuring
your support obligations. Look at what happens in our example as time passes.
Four years from now you will have made $7,200 in payments for each of the 2
children for four years. ($7,200 x 2 x 4 = $57,600) and your remaining support
obligation will have decreased by $57,600 to $151,200. Only that amount of
insurance would be needed. Your children would receive more than you are
legally obliged to provide. Of course, you might like that idea.
Should you want to reduce
the insurance coverage it would not necessarily be simple or even possible. If
you had agreed in a Separation Agreement, or been ordered by the Court, to name
the children as irrevocable beneficiaries of the policy, or to appoint your
ex-spouse as trustee for the children on your $208,800 policy, it is cumbersome
and will probably involve a lawyer and lawyer's fees to amend the agreement or
court order, even if your ex-spouse is co-operative.
"Is there a way I
can life insure my support obligation and leave me free to benefit whoever I
wish by my Will and other insurance policies?"
Until recently there was
no insurance product on the market that specifically insured a support payment
against the death of the payer. Being able to insure a support payment
separately allows other insurance and estate assets to be freed up for the
other beneficiaries such as a new spouse and further children.
In 1995, the Family Law
Insurance Centre Inc. launched the sale of just such insurance, underwritten by
ITT Hartford Insurance Company after working with family law lawyers to
understand the needs of separated families for such insurance. The produce is
the "Familysure 2000", a reducing term
policy with a reasonable level premium that will, upon your death before the
support obligation is ended, continue that support payment monthly until its
completion date as set out in your separation agreement or court order.
The child support
insurance will provide a continuation of the monthly support payments, indexed
to the cost of living (up to 5% per year) and payable until the child's 23rd
birthday, or to such other date as might be specified in your Separation
Agreement or Court order. If the amount of support is increased or decreased,
then the coverage can be modified to accord with the exact obligation. The
child support, being a fixed term policy, is relatively inexpensive. The
company is beginning to quote for spousal support as well, but it is more
expensive as the payments are calculated for the life of the ex-spouse, a much
longer time than child support would be payable.
At the present this is
the only such insurance policy in Canada Suite 400Etobicoke , Ontario
"Do I have to buy
life insurance to cover my support obligations?"
A
Court
It is rare that a
Separation Agreement does not address the issue of insurance being used to
protect your children and ex-spouse's support payments.
You may be wealthy enough
that you can provide security for support payments from your assets and still
meet all your other estate planning objectives. However, most of us do not have
access to such large resources, and some form of insurance is necessary.
"My children are
very young. Can I name the children as beneficiaries of my Will or my life
insurance?"
Yes, you can, but
remember that in Ontario a person under the age of 18 cannot receive control of
money left to them in a Will or insurance policy. If a minor inherits or is an
insurance beneficiary, their money is taken over and administered by the Public
Guardian and Trustee. The Public Guardian and Trustee can spend the money for
the minor's benefit until they each reach the age of 18, at which time the
minor receives the entire remaining balance of the money.
Dealing with the Public
Guardian and Trustee to obtain the money for raising children is cumbersome.
Eighteen year-olds seldom have the maturity to manage large sums of money for
their long term benefit. It is far better for you to name a trustee of your own
choosing for the child. A trustee manages the money for the child's benefit,
maintaining and educating him or her. When the child reaches the age you
choose, then the remainder of the child's share is paid out. There are two ways
to do this.
If you simply want to
name the child as the beneficiary of a life insurance policy so that he receives
the money outside the Will, and the value of the policy does not form part of
the value of your estate for 'probate' purposes, then you would have your
insurance agent name the trustee on the policy. Then it is necessary to have
your lawyer prepare a formal trust agreement that sets out the obligations and
discretions of the trustee, and designates the age at which the child will be
entitled to receive control of the remaining capital of his share.
The other method is to
make the proceeds of the insurance policy payable to your "Estate".
If you do that, the Will sets out the detailed instructions to the trustee.
In either case you should
specify who is to receive that child's share of the insurance policy or estate
in the event that the child does not live to the age you specify for her to
gain control of her inheritance.
"Who should I
name as trustee?"
In some cases you may
feel quite comfortable naming your ex-spouse as the trustee. If you prefer to
appoint someone else it should be someone with whom your 'ex' can get along
well. The children will be living with your 'ex', and a god working
relationship between parent and trustee is important.
No matter how bitter the
separation or divorce may have been, do not use this as an opportunity to make
life difficult for your ex-spouse's household. After all, the children will be
coping with their grief at losing you. They do not need their lives further
complicated by uncertainty, or worse still, further legal wrangling to obtain
access to the money necessary to raise them.
"What are the
most important things to remember?"
Make a Will. Provide
enough insurance or other assets to honour your
support obligations . We are all going to die. None of us known when. We can
plan for that eventuality, and make sure that our children have the financial
security that we would want them to have if we were still living.
Lancaster, Brooks & Welch L.L.P.
St. Catharines Office
P.O. Box 790, 80 King Street., St. Catharines, Ontario, L2R 6Z1
Tel: 905.641.1551 Fax: 905.641.1830
Welland Office
P.O. Box 67, 247 East Main Street, Welland, Ontario L3B 5N9
Tel: 905.735.5684 Fax: 905.735.3340
Grimsby Office
55 Main Street West, Grimsby, Ontario, L3M 1R3
Tel: 905.594.1263 Fax: 905.594.1268
For additional information contact our
Administrator.
This page and all our Web Site contents are © 2004, Lancaster, Brooks & Welch L.L.P.
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Child And Spousal Support Obligations
After Death by H. Christina MacNaughton for Parent Quarterly Magazine We all hope that we will
live long enough to complete the parental task of raising our children to
adulthood and independence, but sometimes parents die before the children are
grown. We never know which spouse will outlive the other. Families use estate
planning and insurance policies to provide the funds for the other parent to
carry on if the breadwinner dies prematurely.
"I just separated
from my spouse, and I don't want to leave him/her anything in my will. Can I
leave everything to the children instead?" In Failing to provide for
your separated spouse in your Will risks the court making awards from your
estate that effectively rewrite your Will for you if you die before those
support rights have been defined by court order or separation agreement. If you have no major
assets and are not employed outside the home, you will not be taking much risk
if you make a new Will leaving nothing to your spouse. However, if you have
major assets or are the bread-winner, prematurely eliminating your spouse from
the Will, creates a high risk that the Will would be contested successfully. If you are a major
breadwinner, wait until the support rights have been defined, and then you will
know what provisions you will need to make in your estate planning for the
other spouse, if any. "My spouse has
released all rights to spousal support in the separation agreement. Is that
enough to free me to leave all my money to someone else?" Not quite; the right to
claim as a dependent against your estate arises not just as a support right
under family law legislation. The dependent's relief claims and rights to
inherit under the Succession Law Reform Act also have to be released
specifically in the agreement. "If my court
order or separation agreement doesn't specify that support payments end when I
die, what happens then?" If you were paying
support to your (ex)spouse under any order or agreement at the time of your
death, he or she will have a claim against your estate to continue those payments,
or to receive an adequate lump sum to compensate for the loss of that weekly or
monthly payment. The claim for an award
from your estate would be made under the Succession Law Reform Act as what is
called a "dependent's relief claim". In deciding how much money your
dependent (ex)spouse or child should receive from your estate, the court will
consider the amount of support you were paying at the time of your death as
well as any another property they receive as a result of your death under
insurance policies or from joint ownership of your residence. "I remarried and
have a child by my new spouse. I want to leave them all of my estate. Won't the
court favour them over my former spouse and older
children?" No. If you only take care
of some of your dependents, the court will look at the needs of all your
dependents, and will apportion your estate among them all. "Will naming my
ex-spouse and older children the beneficiaries of my group insurance policy
from work free up the rest of my estate to be left to others?" Maybe, but that's hard to
know in advance. Is the death benefit enough? Is it too much? Support
obligations are usually in the form of a monthly or weekly payment. For
children that obligation is generally over by the time the child is 23 years
of, sometimes sooner. The obligation to pay spousal support may last as long as
your ex-spouse lives. Expressing a monthly
payment as a lump sum is a task for actuaries. With every passing month and
each support payment made, there is less to pay in the future. Suppose that you
are now paying child support of $1,200 per month for two children, aged 7 and
10. The obligation is for $600 per child per month, or $7200 per year per
child. To make this very simple
we'll make three assumptions. First, we'll leave out any calculation of cost of
living increases or variations of support to account for the children's
changing needs in the future, and assume the amount is the same from the
beginning to end. Second, we'll ignore the fact that an actuary would discount
the total value of the payments in arriving at the present (commuted) lump sum
value. Third, we'll also assume that each child has just attained his present
age and that support ends at age 23. Given those three assumptions,
you would pay support for the younger child for another 16 years, and 13 years
for the older child. Total payments would be $115,200 for the younger child and
$93,600 for the older child. The grand total of the obligation today is
therefore $208,800. Perhaps you have enough
to cover that from your group life insurance policy. If so, then there would
arguably be enough life insurance to take care of the support so that you could
do what you liked with the rest of your estate in your Will. If not, then you
would need to leave more of your estate to take care of those children. Before depending on your
group insurance to provide for the support obligation, ask yourself whether you
will have that job and that group coverage for all the children's dependent
years. You would face losing that policy along with your job if your company
downsizes, and you are too old or have a medical rating that makes replacement
insurance beyond your budget, and you have to rearrange your estate plans to
cope with the situation. On the other hand, if you
use your group policy, you can wind up overinsuring
your support obligations. Look at what happens in our example as time passes.
Four years from now you will have made $7,200 in payments for each of the 2
children for four years. ($7,200 x 2 x 4 = $57,600) and your remaining support
obligation will have decreased by $57,600 to $151,200. Only that amount of
insurance would be needed. Your children would receive more than you are
legally obliged to provide. Of course, you might like that idea. Should you want to reduce
the insurance coverage it would not necessarily be simple or even possible. If
you had agreed in a Separation Agreement, or been ordered by the Court, to name
the children as irrevocable beneficiaries of the policy, or to appoint your
ex-spouse as trustee for the children on your $208,800 policy, it is cumbersome
and will probably involve a lawyer and lawyer's fees to amend the agreement or
court order, even if your ex-spouse is co-operative. "Is there a way I
can life insure my support obligation and leave me free to benefit whoever I
wish by my Will and other insurance policies?" Until recently there was
no insurance product on the market that specifically insured a support payment
against the death of the payer. Being able to insure a support payment
separately allows other insurance and estate assets to be freed up for the
other beneficiaries such as a new spouse and further children. In 1995, the Family Law
Insurance Centre Inc. launched the sale of just such insurance, underwritten by
ITT Hartford Insurance Company after working with family law lawyers to
understand the needs of separated families for such insurance. The produce is
the "Familysure 2000", a reducing term
policy with a reasonable level premium that will, upon your death before the
support obligation is ended, continue that support payment monthly until its
completion date as set out in your separation agreement or court order. The child support
insurance will provide a continuation of the monthly support payments, indexed
to the cost of living (up to 5% per year) and payable until the child's 23rd
birthday, or to such other date as might be specified in your Separation
Agreement or Court order. If the amount of support is increased or decreased,
then the coverage can be modified to accord with the exact obligation. The
child support, being a fixed term policy, is relatively inexpensive. The
company is beginning to quote for spousal support as well, but it is more
expensive as the payments are calculated for the life of the ex-spouse, a much
longer time than child support would be payable. At the present this is
the only such insurance policy in "Do I have to buy
life insurance to cover my support obligations?" It is rare that a
Separation Agreement does not address the issue of insurance being used to
protect your children and ex-spouse's support payments. You may be wealthy enough
that you can provide security for support payments from your assets and still
meet all your other estate planning objectives. However, most of us do not have
access to such large resources, and some form of insurance is necessary. "My children are
very young. Can I name the children as beneficiaries of my Will or my life
insurance?" Yes, you can, but
remember that in Ontario a person under the age of 18 cannot receive control of
money left to them in a Will or insurance policy. If a minor inherits or is an
insurance beneficiary, their money is taken over and administered by the Public
Guardian and Trustee. The Public Guardian and Trustee can spend the money for
the minor's benefit until they each reach the age of 18, at which time the
minor receives the entire remaining balance of the money. Dealing with the Public
Guardian and Trustee to obtain the money for raising children is cumbersome.
Eighteen year-olds seldom have the maturity to manage large sums of money for
their long term benefit. It is far better for you to name a trustee of your own
choosing for the child. A trustee manages the money for the child's benefit,
maintaining and educating him or her. When the child reaches the age you
choose, then the remainder of the child's share is paid out. There are two ways
to do this. If you simply want to
name the child as the beneficiary of a life insurance policy so that he receives
the money outside the Will, and the value of the policy does not form part of
the value of your estate for 'probate' purposes, then you would have your
insurance agent name the trustee on the policy. Then it is necessary to have
your lawyer prepare a formal trust agreement that sets out the obligations and
discretions of the trustee, and designates the age at which the child will be
entitled to receive control of the remaining capital of his share. The other method is to
make the proceeds of the insurance policy payable to your "Estate".
If you do that, the Will sets out the detailed instructions to the trustee. In either case you should
specify who is to receive that child's share of the insurance policy or estate
in the event that the child does not live to the age you specify for her to
gain control of her inheritance. "Who should I
name as trustee?" In some cases you may
feel quite comfortable naming your ex-spouse as the trustee. If you prefer to
appoint someone else it should be someone with whom your 'ex' can get along
well. The children will be living with your 'ex', and a god working
relationship between parent and trustee is important. No matter how bitter the
separation or divorce may have been, do not use this as an opportunity to make
life difficult for your ex-spouse's household. After all, the children will be
coping with their grief at losing you. They do not need their lives further
complicated by uncertainty, or worse still, further legal wrangling to obtain
access to the money necessary to raise them. "What are the
most important things to remember?" Make a Will. Provide
enough insurance or other assets to honour your
support obligations . We are all going to die. None of us known when. We can
plan for that eventuality, and make sure that our children have the financial
security that we would want them to have if we were still living.
Lancaster, Brooks & Welch L.L.P.
St. Catharines Office
Welland Office
Grimsby Office
For additional information contact our
Administrator.
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