Toronto Estate Law Blog : Toronto Estate Lawyer : Hull & Hull Law Firm : Trust Mediation and Succession Planning : Serving Ontario, Ottawa, Mississauga, Hamilton

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The recent Ontario Court of Appeal decision in Carrigan v. Carrigan Estate (“Carrigan”) has radically altered our understanding of the priority scheme for payment of pre-retirement death benefits to surviving spouses under Ontario’s Pension Benefits Act (“PBA”).  We have previously discussed the estate law and family law implications of Carrigan (see our blog postings here and here), but take this opportunity to discuss its impact on the pension industry.  

It would not be unfair to say that Carrigan has sent shivers through the pension industry: the decision has created uncertainty, where previously there was general consensus and established practice in the pension industry.

At the trial level in Carrigan, the Court interpreted the PBA in a manner consistent with the established practice in the industry; i.e. that the spouse (married or common-law) who is living with a plan member at the date of death has priority, and is “the spouse” entitled to the death benefit payable upon the plan member’s death, subject to the operation of a spousal waiver if one exists. As there was no spousal waiver in the case, the common-law spouse was accordingly awarded the pre-retirement death benefit at trial.

However, on appeal, the majority of the Court of Appeal overturned the trial decision.  The Court of Appeal interpreted the relevant PBA provisions such that if the married spouse was “living separate and apart” from the plan member at the time of death, the death benefit had to be paid to the plan member’s designated beneficiary (or estate, if there was no designated beneficiary). In the case, the designated beneficiary was the married spouse (from whom the plan member was living separate and apart) and her two daughters.  The common-law spouse (who had been living with the plan member at the time of death) was, accordingly, denied the death benefit.

Leave to appeal to the Supreme Court of Canada is currently being sought, and the law in this area is, therefore, in flux.  Until there is a decision by the Supreme Court or legislative reform, as a result of Carrigan, a member of pension plan governed by the PBA can no longer assume (as he may previously have been advised by plan administrators) that his common-law spouse will, as of right, be entitled to his pension survivor benefits if he is also survived by a married spouse.  Appropriate estate planning  and beneficiary designations are now required in order to ensure that the common-law spouse will receive such entitlements.  

Subject to further direction from the Supreme Court or legislative reform, Carrigan could change how pension plan administrators pay death benefits in the future in similar circumstances.  The decision also calls into question death benefit payments which were made in the past in similar circumstances, creating the risk of claims from deceased members’ named beneficiaries or estates.  Until the uncertainty created by Carrigan is resolved, plan administrators will undoubtedly excerise extra caution in administering the pension benefits of members who have died leaving both a married and common-law spouse.

Thanks for reading,

Saman Jaffery 

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Yesterday, Nadia M. Harazymowycz blogged about a recent Ontario Court of Appeal decision which brought together the worlds of family and estate law. Today, I turn to a somewhat more detailed look at that case and its potential impact on estate litigation.

Carrigan v. Carrigan Estate dealt with the issue of who, as between a common law and legally married spouse, was entitled to a pension death benefit. In that case, the Deceased was legally married until his death despite having separated from his wife many years prior. After separation, the Deceased began a relationship with another woman who would eventually become his common law spouse. The Deceased’s will, which he prepared while he was married, named his wife as estate trustee as well as the sole beneficiary of the residue of his estate, after bequests to his two daughters. Following their separation, the Deceased designated his legal wife and two daughters as beneficiaries of his pension death benefit. The Deceased and his wife never formalized their separation by a court order or separation agreement. Upon death, both his legal wife and common law spouse made claims on the pension death benefit under s. 48 of the Pension Benefit Act (the “PBA”).

At first instance, the trial judge found that the Deceased’s common law spouse was entitled to the death benefit based on an interpretation of s. 48(3) of the PBA. That section was interpreted to mean that only a spouse living with the member of the pension plan at the time of death was entitled to the benefit.

The appellate court reversed the trial judge. In so doing, the court focussed on s. 48(6) of the PBA, which provides for a designated beneficiary to claim the death benefit “if, (a) The member or former member does not have a spouse on the date of death; or (b) The member or former member is living separate and apart from his or her spouse on that date.”

While the trial judge interpreted this section as only being triggered when (a) was satisfied, the appeal court reasoned that “[t]he structure of s. 48(6) indicates that the existence of either circumstance triggers the application of the subsection” [emphasis added]. The result of this finding was that neither the legal wife nor the common law spouse could be defined as a “spouse” under the PBA, thereby establishing the named beneficiary as the rightful claimant.

The decision in Carrigan serves as a reminder to update your will and other testamentary dispositions, especially following a separation or divorce.  It also underscores the importance of careful consideration of the legal consequences of these decisions. Finally, as noted in Nadia’s blog from yesterday, this decision is likely to have family law implications as well; notably, reinforcing the importance of formalizing a separation through a valid agreement or court order.

Thanks for reading!

Suzana Popovic-Montag

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I can recall various conversations with my grandparents about what it’s like to live into your 80s and 90s. The responses varied on the day and the specific topic of discussion, but there was always an undercurrent that life was worth living, and that extending life was a good thing. The dreams you have for your ‘elder years’ may be diverse or focused, but how you are going to support those plans is something you may already have banked on, literally and figuratively. For many Canadians, their retirement plan includes a pension, and a reliance on those funds to live the life of freedom they have long worked hard for, and for some, the pension is the lifeline and the only means by which they will financially survive. Yet, in the ever changing economy, and in planning for the future, how much consideration ought to be given to the pension plan’s investment strategy when planning for your life? 

Statistics Canada reports that between 1950–1952, the average life expectancy for a Canadian Male was 66 years and 71 years for a female. The life expectancy for the average Canadian now, is 79 years for a male and 83 years for a female.  Life expectancy in Canada may surpass 90 years by 2100.  This increase is substantial, and most everyone in the country breathes a sigh of relief to know that we have those precious extra years to spend with our loved ones in retirement, as noted, many relying on pensions to survive. Yet, as recently reported in the Globe and Mail, more than $1-trillion of Canadian pension assets and annuity reserves face longevity risk[1].  As we live longer, we are putting our pension plans, many created and based on historical valuations, together the security they provide, at risk. The solutions to this problem are far reaching and there are certainly those who will be focussing their attention on this particular field in the near future, perhaps, in an ironic twist, exploring this potential financial deficit will be of financial benefit to some.  

I suppose the most important question for the moment is whether the pension plans will have sufficient funds to pay out on their obligations, and how will this interplay impact your estate planning and livelihood.

Thanks for reading,

Nadia M. Harasymowycz - Click here for more information on Nadia Harasymowycz. 

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In King v. King, an ex-husband brought an application for a declaration that his former wife waived her entitlement to his survivor’s pension by way of a separation agreement that contained a release by the wife of any claim or interest in the pension.

Section 24 of the Pension Benefits Act establishes a joint and survivor pension in the case where a former member has a spouse on the day that the first instalment of the pension is due to be paid. Because the first instalment of the pension was due at the time that the ex-husband was married to his second wife, the pension became a joint and survivor pension.

However, the separation agreement does not resemble the statutorily required Form 3. As such, the ex-husband cannot rely on the Act’s exception that would have been grounds for a declaration that there was a waiver of the wife’s entitlement to the pension. Justice Cornell remarked that “given the mandatory requirement that in order for the waiver to be valid, the prescribed form must be used, Mr. King has found himself in the unfortunate position of being caught in a trap for the unwary”.

To avoid such problems, those drafting separation agreements should be aware of the specific legal requirements regarding particular types of pensions.

Note also that Form 3 was revoked in 2000, so going forward, this is not likely a restriction.

Sarah Halsted - Click Here For More Information About Sarah Halsted

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The Supreme Court of Canada ("SCC") recently considered the interplay between traditional trust law and closed pension plans. In Buschau v. Roger Communications Inc. [2006] S.C.J. No. 28, the SCC held that members of a closed pension plan could not rely on traditional trust law principles to require the termination of the pension plan and distribution of its surplus.

Pension plans have their own set of unique contractual and legislative rules that operate outside of traditional trust law. In Buschau v. Roger Communications Inc., members of a closed pension plan registered under the Pensions Benefits Standards Act, 1985, sought to terminate the underlying trust of the plan and distribute surplus assets in the plan on the basis of the rule in Saunders v. Vautier.

According to that common law rule, the terms of a trust can be varied or the trust terminated if all beneficiaries of the trust, being of full legal capacity, consent. The SCC held that members of the pension plan could not invoke the rule in Saunders v. Vautier to terminate the trust. It required that beneficiaries seeking early termination possess the sum total of vested, not contingent, interest in the trust corpus. The members did not have absolute entitlement to the surplus until the pension plan and trust were terminated.