# Nortel pension windup..which way to go..Annuity or LiF.



## carverman (Nov 8, 2010)

My Nortel underfunded pension plan has been wound up.
I have now received the forms and paperwork in the mail explaining what I need to do to select one of two options.

*The first one (annuity settlement*, with a life insurance company ) is straightforward. I just sign the forms and I will be getting slightly more each month than I'm getting now, but the payments stop at my death, and there is no lump sum payable to my estate.

The calculated annuity payment (non indexed) would be $1938 per month, after income tax and $300 court ordered indefinite support payments to my ex, I would receive $1438.42 , approx.) from my commuted pension amount.

With no other provision for those support payments after my death, she would (no doubt) come after my estate .

*The LIF amount: (commuted pension value is $231.519.36 *locked in, can be transferred on Jan 1/2017 at
the earliest. My monthly pension would be interrupted for a specific amount of time until the LIF is active
and that would mean the $300 (automatic deducted at source) support payments stops as well.

I will not be entitled to unlock up to 50% with an agreement with the FI that I chose, however lesser amounts can be
still unlocked depending on what my health care needs will be over the next (estimated) 10 to 15 years of my remaining life. I am 70 now. 

There are some strings attached to the LIF option, I would have to get my ex wife (remarried since 1998) to
agree to this (by signing the forms, hence I will need to engage a lawyer to communicate with her, to return
the signed and witnessed form for the pension conversion to LIF funds, 
as her monthly support payments ($300 a month/$3600 a year) are currently funded from my Nortel pension.

(The support payments are fully tax deductible, so with my DTC (Disabilty Tax Credit), I get pretty much of the income tax I pay as a refund.)

*So my question is to all you financial gurus out there familiar with LIF fund investments...

* how much can I expect the above commuted pension amount ($231,520) will pay me in monthly retirement payments
in todays investment climate for :
10 years (to age 80)
15 years (to age 85)


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## pwm (Jan 19, 2012)

My financial calculator says:

at 5% interest: 10 years = $2499/month. 15 years = $1859/month
at 4% interest: 10 years = $2379/month. 15 years = $1735/month

The biggest factor is the interest earned in the LIF. No easy way to estimate what that will be.


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## carverman (Nov 8, 2010)

pwm said:


> My financial calculator says:
> 
> at 5% interest: 10 years = $2499/month. 15 years = $1859/month
> at 4% interest: 10 years = $2379/month. 15 years = $1735/month
> ...


So that definitely sounds better than $1938 a month until the moment of my death.

I just need to find a FI that will invest it for me at those interest rates.


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## Spudd (Oct 11, 2011)

On the other hand, interest rates are low right now, so you wouldn't be able to just get 4-5% interest like that without investing in something riskier. And if you invest in something risky, there's a chance it could go down and you'd end up worse off. 

I would go for the annuity as long as it is enough to support your needs. That way you're guaranteed to get that amount monthly until you die, and you don't need to worry about managing investments or anything.


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## pwm (Jan 19, 2012)

At 3% interest 10 years = $2262 15 years = $1616
at 2% interest 10 years = $2148 15 years = $1502

The annuity payments stop at your death but the remainder of the LIF would still be there for your estate. On the other hand the annuity payment is guaranteed with no investment decisions to make. It's a tough choice.


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## carverman (Nov 8, 2010)

pwm said:


> At 3% interest 10 years = $2262 15 years = $1616
> at 2% interest 10 years = $2148 15 years = $1502
> 
> The annuity payments stop at your death but the remainder of the LIF would still be there for your estate. On the other hand the annuity payment is guaranteed with no investment decisions to make. It's a tough choice.


Yes, I know about the annuity payment situation. Certainly, the $2,000+ a month for 10 years is a bit better than I'm getting now. ($1850 gross), but if I manage to live longer than 80, I could be at a disadvantage at $1500 to $1600 a month gross. I would still have to pay $300 a month to the ex, unless I go back to court first, and that will cost me $$$ for legal fees which is not tax deductible...the support payments are fully deductible. 

However, if I designate her as beneficiary to the LIF, then she can't come after my estate asking for more I hope.
The biggest problem for me is that it will cost money up front for the legal paperwork to make her to agree to the LIF in the first place. But if I make her beneficiary of the LIF, my estate is doesn't have to pay Probate fees on the residual value of the LIF, but she would have to pay income tax on the amount transferred. 

Also I could (in coming years), need to withdraw a lump sum due to my health taking even more of a downturn 
for more personal care, so I may need to take more out of the LIF as allowed by CRA rules.


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## Spudd (Oct 11, 2011)

carverman said:


> Yes, I know about the annuity payment situation. Certainly, the $2,000+ a month for 10 years is a bit better than I'm getting now. ($1850 gross), but if I manage to live longer than 80, I could be at a disadvantage at $1500 to $1600 a month gross.


I believe what he is saying is that if you earn 3% interest, for example, your money would last 10 years if you took out $2262/mo. After that your money would be gone. If you took out $1616/mo it would last 15 years. Not that after 10 years it would drop to $1616.


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## twa2w (Mar 5, 2016)

Spudd said:


> I believe what he is saying is that if you earn 3% interest, for example, your money would last 10 years if you took out $2262/mo. After that your money would be gone. If you took out $1616/mo it would last 15 years. Not that after 10 years it would drop to $1616.


Yes that what he is saying. When it runs out it is gone. The other thing not mentioned is that the LIF has a minimun payment you must take out each year and a maximum you can take out so you really cannot forecast a set payment for a set number of years with much accuracy as your rate of return will vary and you may run up against the maximum as the lif gets paid down.
With a LIF you can set your payment between the minimum and the maximum when you start, but how long before you run out of money is only an estimate as rates of return will change. Also you may have to increase or decrease your payments to fit the min max rules.
If your lif is 220,000 on Jan 1 and you are 70 on Jan 1, then your minimum payment is 11,000 per year and your maximum payment would be 13,581 per year.


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## twa2w (Mar 5, 2016)

Sorry, based on your projected lif balance of 231,520 your min pymt 11,576 and max 14,293 per annum.


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## pwm (Jan 19, 2012)

It's a difficult decision because the two variables that have the greatest influence on your calculations are mostly beyond your control and you can only guess at. Your life expectancy and your rate of return on your investments. 

Die young and the LIF was the best choice. Live a very long time and the annuity wins.


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## carverman (Nov 8, 2010)

Spudd said:


> I believe what he is saying is that if you earn 3% interest, for example, your money would last 10 years if you took out $2262/mo. After that your money would be gone. If you took out $1616/mo it would last 15 years. Not that after 10 years it would drop to $1616.


Thanks, I understand that part. Right now my monthly pension income is $1850.07 perm month (not counting CPP (taken at age 60) and OAS monthly pension payments.

Presently my $1850 Nortel net pension is $1353.68 net (after income tax $196.39) and the $300 support payment per month, which is fully tax deductible.

If I chose the annuity, I will get a guaranteed $1938 per month until death. But then it is always possible that the ex could come after my estate, once the support payments stop, but that isn't my concern at this point.

At least with the annuity, a simpler solution being a bit higher at $1938 per month, I can manage to continue to pay her without expensive legal battles, something I can't afford anymore these days.
Since I really don't know when I'll be gone, I could still manage with $1616 per month, since it's my household expenses and at home health care, but only if no other more expensive assisted living is required later on. 

At $1616 per month, I would still be getting around $1200 a month net. A bit lower than I expected, but I still have the equity of my solely owned house with no mortgage. I could always do the reverse mortgage option if need be.

Of course if I don't make it to 85, then it's a moot point and the ex would have the benefit of being beneficiary to the residual left in the LIF.


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## carverman (Nov 8, 2010)

twa2w said:


> Sorry, based on your projected lif balance of 231,520 your min pymt 11,576 and max 14,293 per annum.


That's only $964 a month gross (min) and $1191 month gross (max). 
I don't think I could manage supporting myself and the ex on $964 a month gross income, even if the income tax collected and refunded balances out.


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## carverman (Nov 8, 2010)

pwm said:


> It's a difficult decision because the two variables that have the greatest influence on your calculations are mostly beyond your control and you can only guess at. Your life expectancy and your rate of return on your investments.
> 
> Die young and the LIF was the best choice. Live a very long time and the annuity wins.


Yes, I wish somebody had a "crystal ball" to let us know when we will be gone. 
I now starting to think that the simpler annuity is more than likely the best option for me as it won't cost me my precious savings for my health care at home to fight her in another EXPENSIVE legal battle (round 3 actually).
(divorce was round 1, then my retirement and support reduction (round 2). 
Back then in 1998 and even in 2003 on my retirement, I had more stamina and didn't have the health problems I am facing now.
I just don't have the energy level these days to take the stress I would be subjected to in "round 3"...better to pay the devil we know and leave it at that, I suppose.


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## NorthernRaven (Aug 4, 2010)

One thing to note is that the G&M annuity quotes for a 70-year old man top out at around $620/month per $100K of registered funds; this is non-indexed, with no minimum payout guarantee. The $230K of commuted value would only seem to buy around $1440/month of income at those rates. The Nortel annuity option of $1938/month would seem to be equivalent to an annuity quote of $835/month/$100K, or looking at it the other way, you'd need $310K to buy the Nortel payout at the G&M quoted rates.

Looking at it naively, it would seem the annuity is being priced quite favourably for the recipient, at least given the G&M quotes, unless a residual estate on early death is a major criterion. Given the uncertainty of getting good yield and liquidity on a non-volatile portfolio, and the risk factor, I'd certainly consider the annuity option strongly myself. And if the annuity is actually favourable, that might influence the ex-wife's decision if asked to agree to the LIF option, even aside from her having the same qualms about what to do with a lump sum.

Are there any options on the Nortel annuity choice, say to specify a 5 or 10 year minimum payout guarantee for a slightly lower monthly payment?


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## carverman (Nov 8, 2010)

NorthernRaven said:


> One thing to note is that the G&M annuity quotes for a 70-year old man top out at around $620/month per $100K of registered funds; this is non-indexed, with no minimum payout guarantee. The $230K of commuted value would only seem to buy around $1440/month of income at those rates. The Nortel annuity option of $1938/month would seem to be equivalent to an annuity quote of $835/month/$100K, or looking at it the other way, you'd need $310K to buy the Nortel payout at the G&M quoted rates.


Thank you Northern Raven for clarifying these specific values of my new pension options.

After reading the documents from Morneau-Shepell with the specific instructions to fill out the various forms (Nortel Ontario Beneficiary form 5.3 Direction, Consent and Waiver), it seems to be that the best way right now for me is to *simply go with the default option, the annuity *as offered under the pension plan windup provisions.

*My reasons:* 1) LIF option requires a lawyer to send a letter with the consent forms to my ex for the beneficiary documentation for the LIF. 
We haven't communicated since before the 1998 divorce, and there is still a lot of anger and hard feelings between us, so I am not about to start precedent now.
Involving a lawyer to do even the simple task of sending the consent and beneficiary forms, will cost me additional money right now. 

2) According to my calculations, the pension plan administrators included 3.10% interest on the lump sum of $231.519.36, but because I have been paid a reduced pension (since 2011), there appears to be a lump sum (to make up for that amount of reduced pension since 2011) of $6.960.23 payable to me after Jan 1, 2017. 

That is a bonus that I will not get with the commuted pension and the LIF option. On Jan 1 2017, I can certainly put into my TFSA for future health care expenses.

3). Without consideration of the current 3% interest earned on the invested and declining principle amount on the LIF fund, I calculated that IF I draw on the LIF fund to age 80 (10 year or 120 payments), the amount at best would be about $1925 a month, (which is enough to meet my current needs right now), BUT at that rate of monthly withdrawal, the principal amount plus any interest earned will be exhausted if I live beyond 80.
I could only rely on gov't pensions, which may not be enough for an LTC at that point.

4). Now, should I happen to live to age 85, AND elect the LIF option (15yrs 180 payments), (discounting any interest earned), I can only expect about $1286 per month according to my calculations. 
IF I still have to pay $300 compensatory support by then, I wouldn't have enough to live on in my home or in a LTC depending on how much care I will need by then.

5) I have no RRSPs to supplement my retirement income. I cashed in my RRSPs in 2001 (never anticipating that
Nortel would go bankrupt in 2009), to pay off the mortgage on the house that I own by myself.
I got about $300K of equity in it..and if I need it, I can do a reverse mortgage to get up to 55% of its appraised value
and use that, then sell it and get whatever is left over to supplement my income in a LTC at that point.

6) *With the LIF option,* M-S warn me that my *current pension payments will be stopped *and then I have to wait until the LIF with it's plan administration delays kicks in. 
With the annuity option, *the pension payments continue uninterrupted until the annuity is purchased for me by the plan administrators and at that point the annuity payments take over*. 

This is very important to me, as I would have to come up with the shortfall for the support payments in the interim, not to mention not having enough left over from the two gov't pensions (CPP/OAS) to pay all my household obligations.




> Looking at it naively, it would seem the *annuity is being priced quite favourably for the recipient*, at least given the G&M quotes, unless a residual estate on early death is a major criterion. Given the uncertainty of getting good yield and liquidity on a non-volatile portfolio, and the risk factor, I'd certainly consider the annuity option strongly myself. And if the annuity is actually favourable, that might influence the ex-wife's decision if asked to agree to the LIF option, even aside from her having the same qualms about what to do with a lump sum.


Well, I don't know how she would react these days. *With the annuity option*, I have to specify that $300 per month comes out of my pension,and they will arrange that so there is no interruption (or reason to take me to court), should her support payments stop. 
My payments wouldn't stop either. Support payments are tax deductible for me...legal fees are not. 
However, with the annuity option, the payments stop upon my death and her monthly support too.

Depending on when that happens, she can decide whether to take my estate to court to secure a lump sum from my estate, but this will have to be handled by my estate administrators on my new will just made, in the future. 
If she dies before me, that will be a moot point. 



> Are there any options on the Nortel annuity choice, say to specify a 5 or 10 year minimum payout guarantee for a slightly lower monthly payment?


Apparently not., according to the documents I have received. But, if the annuity payments that I mentioned, continues at same rate to my death, why would I want to reduce it?


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## OhGreatGuru (May 24, 2009)

IMHO - KISS principle. Go with the annuity. But the more I read of your posts, the more I think you may need to consult a lawyer on your obligations anyway. Or perhaps the annuity company can handle this. If you have a legal obligation to pay $300/mo. support in perpetuity, it seems to me you would need 2 annuities - one JWROS for $300/mo., and a second, sole - annuitant, for the balance. But it has to be properly constructed so that the $300/mo. is paid to you first, so that you can deduct the support payment.


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## Oldroe (Sep 18, 2009)

I didn't delve into the number very close. It seemed to me with this 300/month return to at tax time you would be going thru a lot of crap for 100-150. Think the simple way would be better.


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## carverman (Nov 8, 2010)

OhGreatGuru said:


> IMHO - KISS principle. Go with the annuity. But the more I read of your posts, the more I think you may need to consult a lawyer on your obligations anyway.


Yes, it was discussed with my lawyer briefly while I had my new will done up.


> Or perhaps the annuity company can handle this. If you have a legal obligation to pay $300/mo. support in perpetuity,


The compensatory support from my Nortel pension is not in PERPETUITY...it was defined by the divorce court in 1998 as INDEFINITE...in other words, no finite date was set for the support to end..BUT there was clause mentioned (during the reading of the judgement against me), that I CAN return to court IF there is a 'MATERIAL CHANGE OF CIRCUMSTANCE" in the future. 

When I asked what that clause meant, the judge mentioned a "for instance"...my income being reduced..as in as my retirement. (I was still working at Nortel at the time of the divorce judgement).
BTW, this clause was exercised in 2003 when I retired from Nortel due to health reasons, long before they went bankrupt in 2009. The support was reduced from $1000 a month to the current $300.

Now, with my further pension reduction (30%) as well as health issues requiring more expense for at home care from my REDUCED income/Nortel pension, I could now go back, since I now have the actual amount of the annuity payment...and future pension income starting sometime in 2017. 

BUT I don't have the money for the legal battle, or the inclination right now. 
I would prefer to let "sleeping dogs lie" as they say, and just continue the $300 a month support payments, which is fully tax deductible off the top of my gross income. Legal fees are not tax deductible. 



> it seems to me you would need 2 annuities - one JWROS for $300/mo., and a second, sole - annuitant, for the balance. But it has to be properly constructed so that the $300/mo. is paid to you first, so that you can deduct the support payment.


*First of all*, in the arrangements of the Nortel pension windup to the plan administrator (Morneau-Sheppell) annuity purchase, it is a solely for the retiree..not for any ex spouses, as in my case. 
The fact that it is a registered Ontario Pension and there a partial funding from the Ontario Guaranteed pension fund,
makes it all the more reason to go with the annuity, which has restrictions on how the annuity will be purchased and
by whom (not me). 

Since I'm now about 13 years into drawing my Nortel pension, the original pension sum set aside for me of my DB plan has been reduced by the weak investment climate and drawing from it since November 2003.

I calculated (from my T4A) slips from 2003 on wards, that there WAS at least over $534K in my allocated pension initially,which is now dwindled down to $231k over the nearly 13 years drawing monthly payments from it. 

With Nortel no longer around to top it up every year, and the poor investment climate, it is dwindling much faster than I had expected or anticipated 13 years ago.
There is no way I can still draw a pension from what is left for more 10-11 years if invested in a LIF at the monthly
rate I need to live on my own. Hopefully with the guaranteed annuity payment, I can still get the same amount right up to death, and not have to worry about running out of money.

However, I do have to supply copies of the support order with a declaration that she is an ex spouse, and an
existing court order exists. The monthly support payments will be automatically deducted by the insurance company handling my annuity, which relieves me of any additional responsibility of making sure those monthly
support payments are maintained..otherwise she could conceivable take me to court on the defaulted payments.
I don't want yet another costly legal complication again, this time.

*Secondly,* the remaining commuted amount of my pension wouldn't leave me very much if I had to split it up into two annuities, but that is a good suggestion, even though the current plan doesn't allow it, and at the point of my death, my annuity payments would stop ....and so would hers since she would have her payments from my
Nortel pension annuity. At that point she would have to take my estate to court looking for a lump sum in lieu of the support payments.

The LIF option WOULD have a provision to make her the beneficiary of what is left in the LIF fund at time of my death
(and that amount would still be taxable in her hands) , but according to my calculations (including 3% interest on the $231K left from my pension fund), it wouldn't last ME much more than, just a bit over 10 years at $1920 a month pension payments. 
She would have to agree to that as well, which would involve a lawyer to send her the forms and deal with her..I won't. 


For now, I'm just leaving things as they are. In the future, I may be consulting a lawyer to see what my chances are of going back to court, and either having the court rescind the present support order OR reduce it considerably to at least half (maybe). If the court eliminates the support payment, then it is money well spent, but if the court just further reduces it to half ($150), the legal responsibility still remains , and the money spent on lawyers would be essentially WASTED.
That money could be best spent for my future health care.


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## My Own Advisor (Sep 24, 2012)

I would also go with the annuity settlement.

KISS decision as another commenter mentioned and guaranteed money for as long as you live. Hopefully you live well to an old age!


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## Karen (Jul 24, 2010)

The more I've learned bout your divorce over the years, the more shocked I have become about the unfairness of it, especially when her income is obviously much more than yours. It seems the family law rules regarding support payments in BC are very different from those in Ontario. When my husband died in 2009, I asked our lawyer if I would have to continue paying his alimony and his child support payments out of his estate, and he answered, "Good heavens, no. That all ended with Bill's death." It seems that that's not the case in Ontario?

I am also quite sure that an ex-spouse has any rights to a share of the estate of his or her divorced spouse in BC, provided that the divorce has been finalized. If that's not the case in Ontario, that simply isn't right as the family assets were presumably divided evenly at the time of the divorce. Have you discussed that question with your lawyer?


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## carverman (Nov 8, 2010)

Karen said:


> I am also quite sure that an ex-spouse has any rights to a share of the estate of his or her divorced spouse in BC, provided that the divorce has been finalised. If that's not the case in Ontario, that simply isn't right as the family assets were presumably divided evenly at the time of the divorce. Have you discussed that question with your lawyer?


Yes Karen, the divorce was finalised and the family assets, AND her entitlement to my pension were divided evenly at time of divorce. but she was getting $1000 a month of spousal support while I was still working and that got reduced to $300 a month at the time of my retirement. Because there was a provision in the divorce judgement for "compensatory support" of the years that she was not working full time, the clause is still active. Even with a material change in circumstance which now applies to me more than ever, I would have to hire a lawyer and go back to court.

I was shocked at the time of my retirement, that *my pension would be up for grabs again* and I had to get it actuarized again in 2003, for the judge to make a determination on the indefinite compensatory support. 
The reason I was told, is that my pension had grown between time of divorce (1995) and 2003, and that had to be considered in the support equation.

I saw this double dipping, as her claim to half my pension had already been split off in 1998. I lost most of my share of the marital home paying for her entitlement to half my pension, $15K of her legal costs ,and over $8K in interest on the settlement of assets, which were dragged out by her lawyers from 1995 to 1998 ..3 years of sheer hell for me.

I was told afterwards by one of her friends, that she gloated after the divorce and told her " I stuck it to him good!" 
So, with my past legal experience with her..I really don't want to go back to court again. 

I figured that after nearly 13 years of support payments, she has got $46,800 in support and that should be enough as she is living quite well with her 3rd husband.
I found out she remarried immediately after the divorce, and owns joint property with her husband and will get his survivor benefits from his gov't pension after he is gone...but that won't stop her greed. 

I'm sure she will fight me in court again, even though she remarried in 1998 right after the divorce, 
but unfortunately that doesn't let me off the hook legally..... unless I encounter more legal fees ($5K to $10K estimated), and that is something I cannot afford any more with my health deteriorating over the last few months.

I have chose the annuity option, and will continue to pay her $300 a month until my death 
OR some lawyer is willing to take my case on as pro bono, but even then I don't think I can take that kind of stress anymore. It was bad enough when I retired, and now 13 years later, it would compromise my health even more and it isn't very good these days.

As far as her having claims to my estate, NO, she doesn't have any direct claim, but she could hire a lawyer and take my estate to court to get her claim to compensatory support to continue after I am gone. If she is successful at that point, my estate administrator and the lawyer will have to set up an annuity for her "indefinite support" as well.

Unfair as life is to me already, then there is this bad judgement that I have to live with.


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## Karen (Jul 24, 2010)

She sounds like the kind of woman my very proper late mother would have called "a witch spelled with a B" - and a very greedy one at that!


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## Oldroe (Sep 18, 2009)

I remember somebody telling me they bought insurance policy for claims on their estate. This would make it nice and costly for your ex sweetheart to beat insurance company.


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## carverman (Nov 8, 2010)

Oldroe said:


> I remember somebody telling me they bought insurance policy for claims on their estate. This would make it nice and costly for your ex sweetheart to beat insurance company.


Interesting. It's not a problem for me right now, but I will check out what it would cost based on the value of the estate at the time next year. Just need to call up a few insurance companies to get a quote. 

I presume then that the "nuisance" estate claims insurance policy has to be in place before I'm gone? 

I would love to have her take on the insurance company lawyers in a costly legal battle for $300 a month and lose. That would definitely "make me smile in my grave" !

*Update: 13/09/016*

TO; OldRoe
There is no current court order that I have to ensure that a life insurance policy is in place making her irrevocable
beneficiary. There was one at time of divorce in 1998, but that was the Nortel life insurance policy and that
became null and void with the demise of Nortel in 2009. Presently I have no pensioner benefits nor life insurance
and I'm sure at my age it will be costly. 

I'm just going to leave it for now. With no life insurance policy in force, she isn't going to have much luck going
after my estate.


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## OhGreatGuru (May 24, 2009)

OP: you should at least be able to get an opinion from your lawyer to the question " Does this agreement mean support payments have to continue after my death?"

If the answer is no, she has no claims on your estate, and you can opt for the sole annuity without fear she will screw things up for your heirs. Given that her pension entitlement was divided at the time of the divorce, I would think the support payment is just for your life time - or less if you go back to court to plead reduced circumstances.


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