I think it is fair to say that joint ownership of property[2] is one of the most commonly used strategies for property ownership in the context of developing an estate plan.  Like any form of partnership, there are many issues to consider in jointly owning property.  In the context of jointly owned life insurance, there are some specific nuances that must be addressed when dealing with jointly owned life insurance, such as “joint and last to die life insurance”.

In the context of a jointly owned life insurance policy, all rights of ownership require the involvement of both joint owners. One of the fundamental rights of owning an insurance policy, is the right to designate a beneficiary.  In the context of a jointly owned policy, this can raise issues.  Specifically, both owners must agree to who to designate as the beneficiary and both must sign the form to make or change the designation.  Depending on the family relationships, this may pose challenges.

Like any jointly owned property, the joint ownership of a life insurance policy can be unilaterally severed by either of the owners. The joint owners’ then need to look to the terms of the contract to determine what happens with the contract, including what the impact is on the underlying policy value and how it will be shared between the two joint owners.  Ultimately it will be the wording of the contract that determines the outcome.  This can have implications in the context of a matrimonial division of property.

Another challenge can arise where the life insured under the jointly owned policy is not one of the joint owners and the joint owners die in circumstances making it uncertain who survived the other. The issue will be which estate will be considered the ultimate owner.  In Ontario the answer would be that the joint tenancy would be deemed severed so to create a tenancy in common.  The result would be that each of the joint tenants’ estates would have an interest in the policy.  This could lead to successor owners that may not be appropriate vis a vis the life who is insured.

Leaving aside the fairly rare situation of a simultaneous death, in the context of the more common situation of one joint tenant surviving the other, it will be the survivor who succeeds to all the rights of ownership in the policy, as provided by the contract. This means that it is the surviving joint tenant who can, after the death of the first to die, change who the designated beneficiary is.  This could have significant implications to the overall estate plan.  For example, it could lead to a subsequent spouse, as opposed to children of the marriage, becoming entitled to the policy proceeds.[3]

Lastly, and like all jointly owned property, owning an insurance policy jointly exposes the policy to the creditor risks of both joint owners. A means to avoid this risk is to ensure that both joint owners agree to designate a beneficiary who falls within the preferred class.  Where a beneficiary from the preferred class is designated, the policy will not be subject to the creditor risks of the owners.  Members of the preferred class are the spouse, child, grandchild or parent of the person whose life is insured.

While joint ownership is a very useful estate planning tool, there are some challenges that ought to be considered. Those challenges arise equally in the context of jointly owned life insurance.

[1] The inspiration for writing this blog came from the article written by Dianna Flannery, Manulife Financial, entitled “The Intricacies of Joint-Last-to-Die-Life Insurance”

[2] There are two forms of joint ownership of property. They are: joint tenants (with right of survivorship) and tenants in common.  There is a fundamental difference between the two.  Tenants in common involves each owner holding an undivided interest in the property.  The interest is once that can be severed, divided or sold.  When a tenant in common dies, their interest forms part of their estate.  This is distinct from a joint tenant where each joint tenant has the same undivided interest in the property.  Upon the death of a joint tenant, their interest, unless they are the last to die, does not form part of their estate but passes by the right of survivorship to the surviving joint tenant(s).   While the recent Supreme Court of Canada decisions in Pecore v; Pecore, 2007 SCC 17 and Madsen Estate v. Saylor, 2007 SCC 18 have helped to resolve some ambiguity with respect to the manner certain presumptions are applied in the context of property owned as joint tenants, they have also led to much debate about their impact on the concept of the four unities historically thought vital to a joint tenancy.  It is beyond the scope of this Blog to consider this further.

[3] Unless an irrevocable beneficiary designation was done while both joint owners were alive, the consent of the beneficiary is not required to change a designation. It is only if the designation was made irrevocable that the beneficiary’s consent is needed.  One should be cautious before relying upon an irrevocable designation.