Estate Planning

The Best of Both Worlds

By Hull & Hull LLP

A little knowledge goes a long way.  In the context of insurance policies and your overall estate plan, understanding the nuances of a testamentary insurance trust can provide enormous benefits down the road.  Simply taking out insurance on your life - or even naming a specific beneficiary other than your "estate", does not by itself capitalize on the various benefits that may be available by the creation of  testamentary insurance trust.  Proper use of an insurance trust can ensure that the proceeds do not form part of the residue of your estate, but may still be dealt with in a way that is consistent with your overall testamentary objectives. 

This issue is front and center for experienced estate planners, and as such has been dealt with in various contexts on our blog here and here. 

Tim Cestnick, writing for tax matters in a recent article for the Globe and Mail, reminds us of the benefits of creating a separate testamentary insurance trust with life insurance proceeds.  The article, entitled "Your Heirs Will Thank You", highlights six benefits to the insurance trust:

1. Managing distributions to minors;
2. Protecting insurance proceeds from creditors;
3. Tax savings for beneficiaries;
4. Avoiding probate fees on insurance proceeds;
5. Privacy can be attained; and
6. Preserving provincial disability benefits.

One further caveat.  Although not binding in Ontario, a recent Saskatchewan case (Re Carlisle Estate) has created some trepidation for estate planners on the issue of using an insurance declaration in your Will, as opposed to outside of your Will (i.e. by means of a separate declaration).  Until there is some indication as to how this will impact the law in Ontario, make your intent clear by ensuring that the proceeds do not vest in your executor as beneficiary, but are rather held by the executor in trust for the designated beneficiaries.

Sarah Hyndman Fitzpatrick

Sarah Hyndman Fitzpatrick - Click here for more information on Sarah Fitzpatrick.

Full post as published by Toronto Estate Law Blog on October 28, 2009 (boomark / email).