Unresolved Issues in the Valuation of Estate Claims Under Survival of Actions

by Derek Aldridge

This article was originally published in the spring 1998 issue of the Expert Witness.

It has been nearly a year since the Duncan v. Baddeley court of appeal decision (Alberta Appeal #9503-0408-AC) allowed the estate of the deceased to claim for loss of income on behalf of the deceased. In that time we have been involved in estimating the estate’s losses in several of these cases. Discussions among our own staff (at Economica) and with our clients have raised numerous questions about the correct economic approach to valuing these losses.

As most of our readers know, the Duncan decision allowed the estate of a deceased individual to make a claim for the loss of the deceased’s income, under the Survival of Actions Act. This is in contrast to the usual claim under the Fatal Accidents Act in which it is only the surviving dependants who can make a claim for loss of dependency on income and household services.

Unfortunately, it remains quite unclear exactly how an estate’s loss is to be calculated. The guidelines offered in Duncan suggest that we should estimate what the deceased’s lifetime income likely would have been, deduct an amount for tax, and deduct a further amount representing what the deceased would have spent on necessities – or expenses incurred in the course of earning an income (The latter deduction is often referred to as the lost years deduction). However, although this general approach is outlined in Duncan, there remain many uncertainties.

First, consider the situation in which a deceased has left no dependants to make a claim for loss of dependency under Fatal Accidents. (Later I will address the situation in which there are dependents, leaving open the possibility of overlapping claims under Fatal Accidents and Survival of Actions.)

Fatal accident cases without dependants

The most important unresolved issue concerns the appropriate deduction from the deceased’s potential income. What should the size of this deduction be? Why is there a deduction at all?

It appears that the courts have endorsed the idea that a deduction should be made for cost of “necessities” that the deceased would have purchased, in the course of living and earning an income. This is similar to the “lost years” deduction that has been accepted in personal injury cases in which the plaintiff’s life expectancy has been reduced. (In these cases, the plaintiff is compensated for the income that he would have earned in the years that he is now not expected to be alive, less the portion of income that would have gone toward his basic necessities.) However, under Survival of Actions claims, we are not compensating the income-earner, so the logic behind this deduction is unclear. By allowing these estate claims, the court seems to have the goal of deterrence, rather than compensation, in mind. If so, then perhaps there should be no necessities deduction at all. Presumably if an “income-generating machine”, owned by the deceased, was destroyed in the same accident which killed the deceased, the estate would receive full compensation for the value of the income-generating machine – without any deduction.

If the goal is to compensate the estate for the deceased’s “lost pleasure” (analogous to compensation for “lost years” in a personal injury case), then we should deduct an amount corresponding to the basic necessities of living. Expenses beyond this surely would have provided pleasure to the deceased.

Without a goal of compensation in mind, it seems that any calculation of a lost-years deduction (and hence, the fraction of income payable to the estate) is arbitrary. In my view, it sounds equally reasonable to compensate the estate for half of the deceased’s income; or the amount by which his income would have been above-average; or the amount by which it would have been above the “poverty-line”; or any other amount.

Are we attempting to compensate the estate for what the deceased’s economic contribution to the world would have been, as if he had been an income-generating machine? If so, then we should be measuring something quite different than after-tax income less some deduction. And of course, the deceased’s economic contribution would have included non-market household services.

Household services is an issue that has not been addressed in these estate claims. So far it seems that only an amount corresponding to the deceased’s potential income is claimable, and the value of his or her services is not. However, it may be found that the deceased would not have ever been employed in the labour force, never would have earned a salary, but would have made significant labour contributions within his or her own home. The traditional homemaker role for women immediately comes to mind as an example. If it is believed that a deceased woman would have worked strictly as a homemaker, does her estate have a claim for a loss? From an economic standpoint it seems that it might. If the woman would have worked exclusively in the home, then she most likely would have had a spouse who was employed outside the home. There would be an implicit transfer of the spouse’s employment income to the homemaker (the homemaker is, to some extent, trading her household services for a share of her spouse’s employment income), and this income might be claimable.

Another way of looking at it is this: Suppose two young unmarried women died in an accident. The court finds that the first woman would have eventually worked as a full-time homemaker and mother in her own home, but would not have worked outside the home. The court also finds that the second woman would have worked for someone else, as a full-time nanny and homemaker, and would have earned $30,000 per year. Even though both of these women would have added similar economic “value” to society, the current economic approach which compensates for the lost labour market contribution would only allow a claim by the estate of the second woman.

Even if we ignore the issue of what deduction to make and assume that only employment income is to be considered, we still face uncertainty regarding tax. Under the Fatal Accidents Act, the award is based on the deceased’s after-tax income, to reflect that the dependants would have benefited from a share of after-tax income. Then the total award is “grossed-up” for tax that the dependant will pay, so that in every year of the future, he or she will have available the same income that he or she would have benefited from if the deceased had lived. The Duncan judgment suggests that we should also deduct tax, but there is no mention of a gross-up. Of course, the estate (whoever that might be) will face an increased tax burden due to the interest generated by the award and will therefore receive insufficient compensation without a gross-up. However, how do we gross-up an award to the estate? That would require that we know who (and how many) will benefit from the award, and we would need to make assumptions regarding their future income and tax situation. However, if the award is paid to the estate, then it seems that the court may not even know who will eventually receive the award, so a gross-up at the time of judgment would be impossible.

In an earlier Expert Witness article (“Implications of Duncan v. Baddeley“, The Expert Witness 2[2]) Christopher Bruce argued that a tax gross-up is not necessary for estate claims if there is no presumption that the estate is expected to invest the award in order to replace a future stream of lost income. However, without a gross-up, the estate will need to spend the entire award almost immediately in order to avoid tax-attracting interest, which would result in under-compensation. And if compensation is not the goal, then what is the purpose of deducting tax at all? Why not base the estate’s claim on gross income?

Fatal accident cases with dependants

In circumstances in which there are surviving dependants after a fatal accident, two additional questions arise. First, “What sort of claim would be more valuable, one under Fatal Accidents or one under Survival of Actions?” The second obvious question is, “Can there be two claims, one under Fatal Accidents and one under Survival of Actions?” The answer to the first question, under most (if not all) circumstances is that a loss of dependency claim under Fatal Accidents would be more valuable (see Christopher Bruce’sImplications of Duncan v. Baddeley“, The Expert Witness 2[2]). The answer to the second question may seem clear, but is not.

Most would probably not expect that the courts will allow surviving dependants to receive compensation for their loss of income and household services dependencies, and at the same time allow the estate to receive compensation for a portion of the income that the deceased would have earned. However, it may be possible for these two claims to co-exist if they do not overlap. That is, the survivors could be compensated for their loss of dependency, and the estate could be compensated for its loss, to the extent that the estate’s loss has not already been claimed by the dependants. For example, under a sole-dependency claim (where, say, there is only a dependant spouse), the spouse receives compensation for approximately 70 percent of the deceased’s after-tax income. The 30 percent that the spouse does not receive is the component of the deceased’s income that benefited the deceased exclusively. However, not all of that 30 percent would have been for necessities and therefore a portion may be claimable by the estate.

Also, if the court decides to apply a divorce (or remarriage) contingency to the dependant spouse’s loss, his or her award may be reduced dramatically. The part of the spouse’s award that is “lost” due to the divorce/remarriage contingency may be claimable by the estate. Taking this a little farther, it is possible that the estate could claim the component of the dependant’s award that is “lost” due to the application of a contingency for the survivor’s probability of survival.

If there is no surviving spouse but there is a surviving child, then under Fatal Accidents, we usually see that the surviving child’s claim only extends to his or her age of financial independence (usually age 18-22). Since the deceased may well have continued to earn income after this point, it seems plausible that for the period after the child’s “independence age”, the estate may be able to make a claim under Survival of Actions. For example, we could observe a case in which a surviving child claims an income and household services dependency loss over the period during which the deceased would have been age 35-45; and then the estate claimed a loss of income from the deceased’s age 46 to retirement.

Despite the difficulties involved in calculating the estate claim under Survival of Actions; from an economic (and, I would hope, logical) standpoint, it seems reasonable that we should be able to incorporate these estate claim “add-backs” after determining an appropriate award for loss of dependency.


The Duncan decision has left us with many questions about how to deal with estate claims. Before these can be answered, it seems that the Court will need to determine whether the goal of these claims is one of compensation or of deterrence. If compensation is the goal, then our task is to determine how to fairly compensate a deceased person’s heirs (the estate), when their financial loss due to the death is (in many cases) minor. If the goal is one of deterrence, then damages should reflect what the deceased’s contribution to society would have been – still a difficult task.


Derek Aldridge is a consultant with Economica and has a Master of Arts degree (in economics) from the University of Victoria.