Life Insurance as Property: Timing is everything
For my final blog of this week, I thought I would give further consideration to the unique legal issues arising out of life insurance beneficiary designations.
Because of the increasing complexity of insurance structures, it is not always easy to determine what "property" is held by a policyholder at the time of his death. The question is relevant when one considers that, in Ontario, Estate Administration Tax is levied on the value of "all property that belonged to the deceased at the time of his or her death." In this context, there is good reason to question when a contract between the deceased and his insurer morphs into a legal obligation owed by the insurer to the beneficiary.
While the contractual obligation between the deceased and his or her insurer has been described by at least one court as a "species of property", that property (if we are talking about term insurance) only realizes its true value after (as opposed to "at the time of") the death of the deceased policy owner. More than one commentator has noted that the value of term life insurance before the death of the deceased is arguably nominal. However, in Re Carlisle Estate, discussed yesterday, the Court stated: "No one would suggest that the value of a winning lottery ticket is the price paid for the ticket. The value of an insurance policy is the amount paid to the beneficiary by the terms of the policy."
Have a great long weekend!
David M. Smith
