The importance of the irrevocable beneficiary designation

Beneficiary designations[1] are not created equal. There is a significant difference between the status of a revocable beneficiary and an irrevocable beneficiary.

A beneficiary designation may be altered or revoked prior to the death of the deceased, unless it is made irrevocable, even in consideration of a binding contract and sympathetic facts, as the Ontario appellate court recently held.

In Moore v Sweet, 2017 ONCA 182, on the breakdown of their relationship, Mr. Moore and Ms. Moore agreed that Ms. Moore would continue to pay the premiums on Mr. Moore’s life insurance policy and she would remain the beneficiary of the policy. However, Mr. Moore later changed the beneficiary designation on his life insurance policy from his ex-spouse, Ms. Moore, to his new spouse, Ms. Sweet, and made such designation irrevocable.

On Mr. Moore’s death, Ms. Moore brought an action seeking entitlement to the life insurance policy proceeds based on the equitable doctrine of unjust enrichment.

Despite the oral agreement, Ms. Moore’s previous designation as a beneficiary of the policy, Ms. Moore’s payment of insurance premiums, and the fact that she had no knowledge of the change in beneficiary, the Ontario Court of Appeal held the proceeds were due to Ms. Sweet. The Court held:

  1. Ms. Sweet had been enriched since she was receiving the proceeds;
  2. Ms. Moore was correspondingly deprived based on her contract not being fulfilled;
  3. However, the majority of the Court found that despite the deprivation suffered by Ms. Moore there was a juristic reason for awarding Ms. Sweet the money because Ms. Sweet had been named the irrevocable beneficiary of the policy.

In result, the irrevocable beneficiary designation was seen as binding despite the existence of a valid contract. Ms. Sweet was awarded the policy proceeds of $250,000.

The Moore v Sweet decision illustrates the resilience of irrevocable beneficiary designations and the importance when entering into a contract dealing with a beneficiary designation to ensure the designation is made irrevocable. Irrevocable designations cannot be revoked or changed without the consent of the named beneficiary.

If you have questions about beneficiary designations, do not hesitate to contact one of our lawyers in our Wills, Estates + Trusts Practice Group.

[1] Benefits that arise on the death of a deceased and are assigned through a beneficiary designation pass to the beneficiary outside of the estate of the deceased. Benefit plans such as life insurance, pension and retirement plans, welfare funds, and employee benefit arrangements generally permit participants to designate a beneficiary.