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Pension Plan: Death Benefit

Camila Motta

October 21, 2020
Pension Plan Family Law

If you have a Pension Plan, you are probably aware of its death benefit. Do you know how your death benefit works? There may be important differences in who receives this benefit depending on the circumstances at the time of your death.

If you die before retirement

In this case, generally, your spouse will receive the benefit. Your spouse is the person you are married to; or that you have been living with for, at least, three years; or, you have been living with for less than three years, but you have a child together.

There are two exceptions to the spouse rule: if your spouse waives their entitlement in writing (before or after your death. If it is waived before, they can cancel the waiver anytime while you are alive.); and if you and your spouse are not living together anymore – if you were separated or divorced at the time of your death.

A Separation Agreement is important for many reasons, and this is one of them. Imagine you have been separated for years and you start living with a new partner. If you die before signing an Agreement or getting a divorce, your new partner may need to face a battle to receive your benefits. The person you are legally married to may want to pursue the benefit entirely, or claim their share, without you ever having the chance to negotiate it.

If you don’t have a spouse at the time of your death, your named plan beneficiary will receive the benefit. If there is no named beneficiary, the benefit will be paid to your estate and distributed in the same way your inheritance will be distributed. If you don’t have a valid or up to date Will, this, again, may have unexpected results.

If you die after retirement

If you are already receiving your pension payments when you die, and you have a spouse, they will receive the benefit as a joint and survivor pension. If you don’t have a spouse when you retire, the death benefit paid to your beneficiary, if any, depends on your plan’s specific terms and conditions.

The Joint and Survivor Pension means that your eligible spouse will receive at least 60% of your monthly payments for their lifetime, even if they marry again.

To be eligible, your spouse should be still in a relationship with you at the time you first receive your pension payment. They will still be entitled to the death benefit if you are separated at the time of your death. This applies even if you have a new partner. That’s because your spouse was already entitled to their share of the benefit when you died. The only way to avoid this is to negotiate their entitlement when drafting your Separation Agreement or pursuing your divorce. It is better to consult with a divorce & family lawyer in Toronto to draft your Separation or Divorce agreement.

You can find more information about pension plans here: http://www.fsco.gov.on.ca/en/pensions/pension-plan-guide/pages/LE-If-You-are-Thinking-About-Retirement.html#support-family

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