Child support life insurance beneficiary claim against the estate? A few things to consider.

  • June 03, 2013
  • Henry Villanueva

When marriages break down couples would usually enter into a separation agreement that deals with issues such as child support. Child support may be provided by being designated as the beneficiary of an ex-spouse’s life insurance policy. In the event that the ex-spouse (‘Father’ for illustration purposes) never updated his policy to address the needs of his child of his previous marriage, and the Father died unexpectedly, issues as to entitlement to the Father’s life insurance proceeds would arise. On one hand we have the child or the child’s Mother claiming that the proceeds should go to the child by virtue of their separation agreement and on the other we may have the Father’s new family claiming the proceeds form part of the estate or, even more complicating the proceeds accrue to the current named beneficiary, perhaps that person being a new spouse. The issues are many but the initial visit with the client is how to enforce the child support provision stipulated in the separation agreement.

It is difficult at best to contest a named life insurance beneficiary and similarly to contest the child support clauses in a duly executed separation agreement. However, if counsel can show that the deceased neglected to update the insurance policy after a major life change, such as remarriage or adoption, a probate court may order that the insurance proceeds be paid to another beneficiary by virtue of existing contractual obligations.

Safeguarding the separation agreement

To minimize such issues arising on death, it is prudent to provide a clause in the separation agreement stating that the Father is to provide proof of having changed the designated beneficiary of his life insurance policy within a reasonable amount of time not to exceed 30 days from the signing of the separation agreement. Such undertaking may be further supported by a clause that states that the child support section of the separation agreement would constitute a first lien on the estate of the Father in the event of untimely demise and if the policy had not been updated. Having secured the above, should the time come when a demand letter is necessary to be sent to the Personal Representative of the deceased, the separation agreement would contain enough supporting provisions for a claim against the Father’s estate to enforce contractual child support obligations and claim insurance proceeds.

If the Father unreasonably omits to update his policy despite diligent demands, counsel may want to obtain a court order to order a change of the designated beneficiary to be in-line with the separation agreement.

Challenging the designated life insurance beneficiary

Should counsel have no other choice but to challenge the life insurance beneficiary designated, you would need to review the life insurance policy, forms held by the insurer, forms in possession of the deceased, medical records and correspondence to and from the deceased. Before going to court check that the deceased was the owner of the life insurance policy and was making the premium payments. If someone else bought the policy, that person has the right to name the beneficiaries they choose. Getting this documentation can be difficult but will likely require a court order.

Make sure the life insurance company forms list the correct beneficiary BEFORE death. You usually cannot make your case to the life insurance company directly because the company is obligated to pay the listed beneficiary. However, if you can show that the company made a clerical error, the company may correct the error without forcing you to take it to court. When challenging a life insurance beneficiary, you have to prove that the deceased neglected to or did not have time to change beneficiaries after a major life change (in this case a divorce). Or perhaps the action is showing the Court that he did change the designation but that the new information was recorded by the insurer. For instance, the court may change the beneficiary from a current spouse with no children to the child of the previous marriage as per the Father’s separation agreement if you can show that the deceased never updated the policy after divorcing and remarrying. You may want to show, if applicable, that the deceased should have left the life insurance to a trust for minor children administered by their primary caregiver. A trust allows insurance money to be accessible to minor children who have medical problems or other financial needs. Or you may want to provide proof that the deceased was ordered by a court to name a specific beneficiary but failed to follow the court's order as mentioned above.

Keeping life insurance policies up to date and having witnesses

Because challenging beneficiaries and separation agreements is not easy and someone can end up disappointed and bitter, it is best to head off disputes before they start. Counsel can recommend that clients review their family life insurance policy and compliance with their separation agreement on a regular basis. Recommend that they have a life insurance agent, and they should stay in touch with them to make sure their policies adequately reflect their needs, especially when they have a major life change such as a divorce. Counsel should also update clients on what items are outstanding as per their separation agreement.

It is particularly important to have witnesses when you want to make what some might see as a controversial change (including changing life insurance beneficiaries). The policyholder can do whatever he wants but gathering witnesses could save trouble later if he tells those involved of the changes he is making. It would be harder for people to dispute changes in beneficiaries if the policyholder made it clear he knew what he was doing when he made them.

Urge clients to let their other professional advisers know why they have made those decisions so when they are questioned, there is someone who understands the background. That does not mean the beneficiaries cannot contest it but it will make it more likely that the client’s true wishes are confirmed.

Henry Villanueva is a student-at-law with McLeod Law LLP in Calgary.

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