Child and Spousal Support Obligations after Death

by H. Christina MacNaughton for Parent Quarterly Magazine

This article was written by H. Christina MacNaughton as one of her regular contributions to Parent Quarterly magazine (Fall 96 Issue).

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 the Succession Law Reform Act requires us to provide for our “dependents”. The Act defines a “dependent” to be a spouse – including a common law spouse of the opposite sex – or family member “to whom the deceased was providing support or was under a legal obligation to provide support immediately before his or her death.”

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 parents are obliged to support any unmarried minor child, or a child who is enroled in full-time education. However, if at the time of your death your child is over 16, and has voluntarily withdrawn from parental control, you have no obligation to provide support for that child.

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. If you are paying or receiving child or spousal support and are interested in knowing more, give them a call. They can provide a quotation over the phone: The Family Law Insurance Centre, 401 The West Mall, Suite 400, Etobicoke, Ontario. M9C 5J9, (416)620-1660 / 1-800-529-4333

“Do I have to buy life insurance to cover my support obligations?”

A Court will not force you to buy insurance that you do not already own, but does have the authority to order you to name your ex-spouse and or children as the beneficiaries of any insurance you already have.

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.

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