MAKING AND REVOKING OF BENEFICIARY DESIGNATIONS – PART I
Hello, my name is David M. Smith and I am a partner (and now one of the resident bloggers) at Hull & Hull LLP. The focus of this week’s blogs will be on beneficiary designations. While the natural tendency is to focus on the assets of the estate, we know that the reality is that, quite often, those assets which pass outside of the estate by way of beneficiary designation will exceed the value of the estate assets.
Indeed, an increasingly common estate planning tool is to hold as many assets as possible outside of the estate, primarily as a legitimate means of avoiding estate administration tax (more commonly known as probate fees) and, in certain cases, protection from creditors.
The most common example of such assets that come to mind are Life Insurance, Registered Retirement Saving Plans ("RRSP") or Registered Retirement Income Funds ("RRIF"). Similarly, (and an issue to be considered in future blogs), assets that are jointly held (unless impressed with a trust for the estate) will pass to the surviving joint owner by right of survivorship.
The making and revoking of beneficiary designations are not always simple matters and, regrettably, litigation may ensue where there is uncertainty. Recent caselaw has raised some interesting twists on this developing area of estate litigation.
In Ontario, the provisions of Part III of the Succession Law Reform Act relating to the making of a beneficiary designation are contained in section 51 which reads as follows (within underlining added for emphasis):
s. 51(1) A participant may designate a person to receive a benefit payable under a plan on the participant’s death,
(a) by an instrument signed by him or her or signed on his or her behalf by another person in his or her presence and by his or her direction; or (b) by will, and may revoke the designation by either of these methods.
s. 51(2) A designation in a will is effective only if it relates expressly to a plan, either generally or specifically.
A "plan" is defined for the purpose of Part III to mean a myriad of financial vehicles but generally relates to Pension Plans, RRSPs and RRIFs. The SLRA does not govern beneficiary designations under all pension plans.
The SLRA excludes plans such as RRSPs issued under Part V of the Insurance Act.
An "instrument" is not defined in the Act. The Act does not require that revocation by instrument follow any particular form or formality (Burgess v. Burgess Estate (2000) 52 O.R. (3d) 61.) Accordingly, it is not necessary for a beneficiary designation to be witnessed by two persons as is the case with a Will.
We will consider the revocation of beneficiary designations in tommorrow’s blog.
Have a great day, David. ——–