When Mr. D’Onofrio died at the age of 43, he left behind a common law partner, an ex-wife and three children. He also left behind $15,000 in assets and $462,252 in debts and made creditor-proof life insurance designations worth $1,460,000. Mr. D’Onofrio made his own Will. The Applicant, Mr. D’Onofrio’s common law partner, asked the Court to advise her on a number of issues.
The lessons from this case emerge from four competing and unresolved obligations that Mr. D’Onofrio had: towards his common law partner, his ex-wife, his children, and his creditors.
Prepare a sound estate plan
A sound estate plan successfully balances your competing obligations. Consulting with a lawyer who focuses on estate planning and having a Will drawn up by such a solicitor can achieve a balanced estate plan.
Be mindful of the law of equity
Mr. D’Onofrio had a separation agreement with his ex-wife whereby he agreed to transfer ownership of their former matrimonial home to her. But he never did so. The Court held that Mr. D’Onofrio, and his estate, held his interest in that home on a “resulting trust” under the doctrine of equitable conversion. In other words, he held his interest in the home not for his benefit, but for hers. Consequently, his interest had to be transferred to his ex-wife upon his death and was not available to his creditors upon his death. The law of equity stepped in, as it were, to satisfy Mr. D’Onofrio’s obligation towards his ex-wife.
Making designations is like eating fish with bones
- Obligations under a Separation Agreement: Mr. D’Onofrio designated $1,460,000 worth of life insurance in different amounts to his common law spouse and his ex-wife. In this way, he likely sought to satisfy the obligations he felt towards each of them. However, Mr. D’Onofrio was required by the terms of his separation agreement to designate $500,000 from life insurance proceeds to his ex-wife in trust for his children, but he only designated $250,000 to his ex-wife, and not in trust for his children. Furthermore, he merely “requested” in his Will that $100,000 from his life insurance proceeds be paid to his ex-wife in trust for his children and did not specify which insurance policy was to fund the insurance trust. First, Mr. D’Onofrio’s obligation to settle a $500,000 trust was not met. Second, the gift of $100,000 failed because it was merely precatory, or non-binding, and therefore lacked the certainty of intention required to settle a trust; and because, not having identified which insurance policy was to fund the insurance trust, it lacked the certainty of subject-matter required to settle a trust.
- Dependant’s Relief: Mr. D’Onofrio’s children, through their representatives, brought claims against Mr. D’Onofrio’s estate for dependant’s relief. Mr. D’Onofrio’s designations were like the bones of a fish, which must be parsed out before eating, lest they cause an obstruction. A sound estate plan would have separated the meat from the bones, so to speak, by creating adequate designations to satisfy the requirements of Mr. D’Onofrio’s separation agreement and avoiding a claim for dependant’s relief.
- Beware of designating your wealth into bankruptcy: Lastly, by designating $1,460,000 worth of life insurance proceeds, Mr. D’Onofrio left $15,000 in his estate. Consequently, Mr. D’Onofrio placed his executor in a position of being unable, according to her own testimony, to satisfy his liabilities.
A poorly planned estate can open designated beneficiaries to claims by dependants
Given that Mr. D’Onofrio’s life insurance designations opened his estate up to claims by his children for dependant’s relief, there is an open question as to whether the beneficiaries he designated on his life insurance (his common law partner and ex-wife) will be found to hold part of the insurance proceeds on a resulting trust for his children under the laws of equity. Since the twin 2007 Supreme Court cases of Madsen and Pecore, the courts have been expanding the use of the resulting trust to catch designated assets. A properly planned estate plan can help prevent uncertainty in one’s estate and give effect to one’s wishes.
This blog post was written by Dylan McGuinty, Jr., a member of the Wills and Estates and Estate Litigation teams. He can be reached at 613-369-0379 or at [email protected].
