The Beneficiary Who Wasn't Named
Robert, 68, holds a life insurance policy with a $250,000 death benefit and a segregated fund contract with a $100,000 accumulated value, both issued in Quebec. His will, drafted in 2020, leaves everything to his two children equally. In 2022 Robert completed a beneficiary designation form naming his new spouse, Lucie, as irrevocable beneficiary on the life policy. He never updated the segregated fund designation, which still names his late first wife, Claire. Robert dies in 2024. His daughter, Marie, is the liquidator and calls the advisor, Pierre, asking who receives what and whether the debts of the estate affect the payouts.
1. Determine who receives the life insurance proceeds and the segregated fund proceeds, and explain the reasoning.
Read the worked answer
The two products must be analyzed separately because their designations differ.
- Life policy ($250,000): Lucie is the irrevocable beneficiary. Proceeds are paid directly to her, outside the estate. An irrevocable designation cannot be changed without the beneficiary's consent, and the proceeds do not form part of the succession.
- Segregated fund ($100,000): the designation still names Claire, who predeceased Robert. Under Quebec rules, a designation in favour of a predeceased beneficiary generally lapses, and the proceeds fall into the estate unless the contract provides otherwise. Pierre must review the contract wording - some contracts provide for a contingent beneficiary or for payment to the estate.
- Will: the will's residue clause governs only what falls into the estate. It does not override a valid beneficiary designation on an insurance contract.
- Practical step: Pierre should obtain the actual designation forms and the contract to confirm, rather than relying on memory.
2. How do Robert's estate debts affect each payout?
Read the worked answer
The distinction between estate assets and designated proceeds is decisive.
- Life policy: proceeds paid to a named beneficiary are not part of the estate and are generally protected from the deceased's creditors. Lucie receives the $250,000 free of estate debts.
- Segregated fund: if the proceeds fall into the estate because the designation lapsed, they become estate assets and are available to creditors. Marie, as liquidator, must include them in the estate inventory.
- Will residue: whatever remains after debts is divided between the children under the will.
- Caution: there are exceptions - for example, premiums paid to the prejudice of creditors, or family patrimony rules in Quebec. Pierre should refer Marie to a notary or lawyer for the estate-level analysis rather than give legal advice himself.
3. What professional and ethical issues arise from Pierre's handling of the file?
Read the worked answer
Several issues stand out.
- Review duty: Pierre should have reviewed the designations at each policy anniversary or on major life events (marriage, divorce, death of a beneficiary). The stale segregated fund designation is a service failure.
- Clarity of role: Pierre is not the liquidator's legal advisor. He should provide the contract facts and refer legal questions to a notary.
- Confidentiality: Pierre must be careful not to disclose Robert's personal information to family members who are not entitled to it, even though Marie is the liquidator.
- Conflict: if Pierre also advises Lucie, he must manage the potential conflict between the spouse and the children.
- Documentation: Pierre should record what he told Marie and when, and confirm in writing which documents he provided.