Sample Question 1 for Collection

Gobeil’s Collection of 1,000 Questions™

Sample Question 1

Fred owned a house in joint tenancy with your client, Simon. Fred named Simon as the
beneficiary of his life insurance policy. Fred later drew up a Will bequeathing his share
of the house to Tammy and including a beneficiary designation of Tammy as the
beneficiary of his life insurance policy. Fred predeceased Simon and Tammy.

What would you advise your client?
1. The death benefit of Fred's life insurance will pass into probate.
2. Simon receives Fred's share of the house.
3. Tammy should receive the death benefit of the life insurance.
4. Tammy receives Fred's share of the house.

(A) 1 and 2
(B) 1 and 4
(C) 2 and 3
(D) 3 and 4

(Concepts) Assets can be transferred outside of a Will by virtue of joint tenancy
arrangements or beneficiary designations, and this can be used to avoid probate.
When assets are registered in joint tenancy, the deceased's share of those assets
automatically flows to the surviving joint tenants under the right of survivorship. It is not
possible to use a Will to bequeath assets that are held in joint tenancy; such a bequest
would be void.

The proceeds of a life insurance policy that has a named beneficiary, other than the
estate of a deceased, will be paid to that designated beneficiary, and so the proceeds will
not form part of the deceased's estate and will bypass probate.

A policyowner can execute a valid declaration of a beneficiary in a Will if the
declaration meets the four requirements:
1. the Will must be signed by the policyowner;
2. the Will must clearly identify the insurance policy;
3. the Will must clearly identify the beneficiary who is to receive the death benefit; and
4. the Will must clearly indicate the policyowner’s intention that the named person is to
be the beneficiary of the death benefit.

If the Will was written after a named beneficiary was designated on the life insurance
policy and the Will names a different beneficiary of that policy, the designation in the
Will takes precedence over the designation on the policy. Provided the new beneficiary
named in the Will is someone other than the estate of the deceased, the proceeds of the
policy will be excluded from the estate and will not be subject to probate.

The life insurance company will be protected if it pays the death benefit in good faith to
the beneficiary that is named on the policy because it has not received notice of a later
beneficiary designation in the Will. The beneficiary who was named in the Will can then
sue the beneficiary who was named in the policy to recover the death benefit.

Answer is (C). (Statement 1 is false.) Fred named Simon as the beneficiary of his life
insurance policy. Fred later drew up a Will bequeathing his share of the house to Tammy
and including a beneficiary designation of Tammy as the beneficiary of his life insurance
policy.

Because Fred’s last designation of the beneficiary of his life insurance policy was
Tammy and Fred did not change the beneficiary of the life insurance policy to his estate,
the life insurance proceeds will be paid to Tammy; the death benefits will not be
included in Fred's estate and will not be subject to probate.

So, the death benefit of Fred's life insurance will not pass into probate.

(Statement 2 is true.) Simon is the surviving joint tenant. The law does not allow Fred to
use his Will to name an alternate beneficiary for property that he held in joint tenancy
with Simon; such property must go to Simon.

So, Simon receives Fred's share of the house.

(Statement 3 is true.) Because Fred named Tammy as the beneficiary of his life
insurance policy in his Will and because his Will was dated later than the original named
beneficiary designation on his insurance policy, the beneficiary designation in his Will
takes precedence.

So, Tammy should receive the death benefit of the life insurance.
If the insurance company pays the death benefit to Simon because it was unaware of the
new designation in Fred's Will, the insurance company cannot be held at fault. If Simon
does not pay the death benefit to Tammy, Tammy can sue Simon to recover the death
benefit.

(Statement 4 is false.) Fred predeceased Simon and Tammy. Even though Fred
bequeathed his share of the house to her in his Will, the house was held in joint tenancy
with Simon.

So, Fred's share will automatically pass to Simon under the right of survivorship and
Tammy will not receive Fred's share of the house.