The Goodis (Guardian of) v. Goodis Estate [2002] O.J. No. 4841 (OSCJ, Howden J.) is a case involving Mr. G's children of a prior marriage seeking an order declaring that two insurance policies on Mr. G's life form part of his estate for purposes of their claim for support under the Succession Law Reform Act (SLRA).

Section 72(1)(f) of the SLRA states that any amount payable under a policy insuring the life of the deceased and owned by the deceased is deemed to be part of the estate for purposes of ascertaining the value of the estate and would be available for support purposes.

The two policies in question were owned by Gco. Gco was owned by Mr. and Mrs. G. Mr. and Mrs. G were officers of Gco, but the company was inactive from 1992. Mr. G died in 2000.

The beneficiary designations on the two corporate-owned policies were originally to Gco. The insurance was purportedly purchased to fund a buy-sell agreement between Mr. and Mrs. G and to cover a loan made (from shareholder contributions from Mrs. G to Gco) by Gco to a numbered company (also owned by Mr. and Mrs. G at that time).

In 1995, the beneficiary designations were changed from Gco to Mrs. G. This was done purportedly "upon the advice of our accountant and insurance agent" having "something to do with taxes". (At the same time, two policies issued on the life of Mrs. G, also owned by Gco, which originally named the corporation as beneficiary, were also changed to name Mr. G as beneficiary.)

Finally, in 1999, the beneficiary for one of the relevant policies was changed to Mr. G's first wife in trust for his two children of that marriage for $25,000 each, with the remaining $700,000 to Mrs. G. (At the same time, the beneficiary on one of the policies on Mrs. G's life held by Gco was also changed to the daughter of Mr. and Mrs. G's marriage.)

Throughout the whole period, the owner of the policy was Gco, but the policies were never referred to in the financial statements of the company as assets. Also, the premiums were "expensed through the books of 686171" (the numbered company), which by the time of his death was 100% owned my Mr. G.

The court declared that the two policies in question were part of Mr. G's estate. In coming to this conclusion, Howden J. stated that "s. 72(1)(f) is to be interpreted in a purposive manner, recognizing its purpose as remedying in situations of dependency the non-inclusion of certain assets in a deceased's estate resulting from certain dispositions or ways of holding property." He concluded that in interpreting the word "owned" in s. 72(1)(f), the court should "look beyond the formal registration of the policy to the essence of the situation and all of the circumstances present in light of the purpose of the law."

To this end, he found that Mr. G "had a clear and direct personal connection to these policies." The policies were "treated… as policies controlled by him personally and no longer used for any corporate objective…."

This is a very bad set of facts. While the court did not deal with the ultimate issue of support, it did allow these assets to be included in the estate for purposes of satisfying any support obligations that may arise.

The only lesson one can learn from a case like this is that it is critical to properly address ownership and beneficiary designations when the policy is set up and to review the ownership and beneficiary designations over time as circumstances change.

Corporate ownership and beneficiary designations are appropriate in many circumstances. In this case, these circumstances may not have existed.

While it is true that it makes tax-sense to have non-deductible expenses paid for at the corporate level if the corporation is in a lower tax bracket, this should not be the only reason a policy is held in the company. Unfortunately, it seems that in this case, this may have been the only reason.

Generally, if ownership is corporate, you're asking for trouble if the beneficiary designation serves personal purposes.