Kay Rhodenizer – December 2019
Child and/or spousal support required by a Separation Agreement or Court Order stops when the paying party dies unless the Agreement or Order expressly says the estate must continue to pay. That is unusual and there’s no guarantee the estate will have the money. Insurance paid to replace support paid direct to an estate is also subject to probate fees and might have to be used to pay creditors’ claims for other estate debts.
Life insurance payable direct to named beneficiaries can avoid these problems. Judges frequently order insurance on the paying party’s life to replace support (and sometimes on a parent not paying support but directly providing for children during his/her parenting time).
An irrevocable beneficiary must give written consent to be removed. If the designation is revocable, it can be changed without notice or consent.
The Nova Scotia Insurance Act provides that a child over 18 receives the insurance directly. Parents can avoid this by naming one or more trustees to manage insurance funds until an age they feel the children should be paid directly. Parents should try to agree on children’s trustees with good money management skills if they take this route.
When an insured dies before a child is 18, unless there is a named trustee for the children’s insurance a Court application may be necessary to determine who will manage the funds. This can be costly and delay providing support to children when they are also dealing with the stress of losing a parent.
The surviving parent may be the logical children’s trustee perhaps with another mutually acceptable person as co-trustee or you might consider a corporate trustee. Although corporate trustees charge fees, in the long run increased gains from skilled financial management may still result in a net gain for the beneficiary.
Group insurance through employment can be lost if the insured changes jobs and some options to name irrevocable beneficiaries or trustees may not be available. Only the insured can own a group policy but an adult beneficiary can own a private policy insuring the other party’s life, regardless of who is obliged to pay the premiums.
Most private coverage becomes more expensive as the insured ages but it may be unwise to rely on only existing group coverage assuming it can be replaced later with private coverage because the insured may not continue to be insurable or able to afford premiums in the future.
Because of privacy laws, insurance companies will not provide information about group or private policies to anyone except the policy owner. Knowing the coverage particulars (beneficiaries, coverage and if premiums are up to date) is obviously important to the party relying on the insurance to replace support. If the paying party continues to own the policy, s/he should give the insurer a properly worded authorization to provide this information to the other party. If you are receiving child and/or spousal support, you may wish to have the Agreement or Court Order require you to pay the premiums so you know they are being paid and perhaps receive more support to cover the premiums.
A knowledgeable insurance agent can help you decide the required amount to replace support, based on projected future living costs including providing basics for children and education after high-school. For both non-taxable child and/or taxable spousal support the agent can also calculate projected interest on the insurance capital, tax on that interest and how much coverage is required taking into account that insurance is paid in a non-taxable lump sum instead of over time in monthly support payments. This information is also useful to assess if the amount of coverage can periodically be decreased to reflect the number of years support has been paid.
This blog is not a comprehensive treatment of this topic or legal advice. If you or a family member require more information, our MDW lawyers can assist you.