Bankruptcy, Insurance, Beneficiaries and Taxes

In this case, the trustee and BMO Nesbit Burns Inc. Were likely wrong in attacking proceeds of insurance as belonging to the bankrupt person.

The taxpayer, Mr. Moss,  who sells insurance, sold six life insurance policies to his mother worth 700 thousand dollars. ($700,000.00) Initially he was the beneficiary, however that was subsequently changed to his daughter.

CRA audited  Mr. and Mrs.Moss and his mother. CRA wanted 800k. Naturally Mr. Moss went bankrupt.

The mother died 3 years later.

The daugher got the insurance proceeds.

Lang Michner posted the following article in their newsletter.

To learn more about taxes and bankruptcy, go to www.taxauditsolutions.ca 

To go directly to the bankruptcy information click here. http://taxauditsolutions.ca/cms/index.php/bankruptcy-and-insolvency/

Dan White

BANKRUPTCY & INSOLVENCY:  CHANGE OF BENEFICIARY AUTHENTICITY
Between 1993 and 1995, Mr. Moss sold six policies of life insurance to his mother, Eliza, with a total face value of $700,000.  He was the sole beneficiary on all six policies.  His mother lived with Mr. and Mrs. Moss, who were then being audited and reassessed for income tax by the Canada Revenue Agency in the amount of $800,000. Mr. Moss filed an assignment in bankruptcy in 1996.  Approximately five months before his assignment, notices of change in beneficiary were purportedly executed by Eliza, changing the beneficiary of the insurance proceeds from Mr. Moss to his daughter, Carrie.  Eliza died in August of 1999 and Carrie received payment of $700,000 in insurance proceeds.  Approximately $630,000 of these funds were eventually deposited into an account at BMO Nesbit Burns Inc. (“BMO”) in Carrie’s name. Certain trades were made that resulted in losses of $320,000.  Carrie brought an action against BMO in connection with those losses. BMO learned of Mr. Moss’s bankruptcy during discoveries and amended its statement of defence, alleging that the change in beneficiary forms were invalid.  BMO sought a declaration that the insurance proceeds were the property of Mr. Moss and should be paid to the trustee in bankruptcy for distribution to creditors.  The trustee filed a statement of claim, seeking the same relief. Mr. Moss maintained that the change in beneficiary forms were valid and that he had guided his mother’s hand when she signed them.  The issue of the ownership of the insurance proceeds was made the subject of a separate trial.  The Manitoba Court of Queen’s Bench dismissed the actions for declarations brought by the trustee and the bank.  The C.A. allowed the appeal.
Danny Moss, Carrie Moss v. Keith G. Collins Ltd, et al  (Man. C.A., April 29, 2010) (33760)

“The motion for an extension of time to serve and file the application for leave to appeal is granted.  The application for leave to appeal…is dismissed with costs.”

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