Designated Beneficiaries and the Resulting Trust Principle Cont’d

February 26, 2016 Natalia R. Angelini Beneficiary Designations, Estate Planning, Litigation, RRSPs/Insurance Policies Tags: , , , 0 Comments

Yesterday I blogged about an Alberta case where, although it was found that a RRIF belonged to a designated beneficiary and was not subject to application of the resulting trust principle established in Pecore, the beneficiary was required to personally bear the RRIF tax obligation on various grounds, including that (i) it was “manifestly unfair” that the Estate pay the tax as such result would preclude certain gifts in the Will from being made, (ii) the designated beneficiary would otherwise be unjustly enriched and (iii) the Court inferred that the testator was under the mistaken impression that the tax obligation would be paid out of his estate assets.

Given the provisions of our governing statutes and their interpretation by the Courts, in Ontario we would not likely see this type of outcome.  The applicable legislation is:

  • Subsection 2(1) of the Estates Administration Act (“EAA”)– it provides that the designation of a beneficiary of a fund is a testamentary disposition, such that the fund devolves to the estate and is subject to the claims of creditors.
  • Section 53 of the Succession Law Reform Act (“SLRA”) it provides that if a person is designated as the beneficiary of a plan, the person administrating the plan can pay the full proceeds to the named beneficiary.  The administrator is discharged from any further obligation with respect to payment, and the named beneficiary may enforce payment of the benefit.

Section 53 has been interpreted by the Ontario Court of Appeal as an exception for RRSPs (and other such funds) from s. 2(1) of the EAA such that these types of assets do not form part of an estate but instead devolve directly to the designated beneficiary: see Amherst Crane Rentals v Perring2004 CanLII 18104 (ON CA).

In Amherst, the appellant was a creditor of the deceased. The respondent was the deceased’s widow and designated beneficiary of RRSP funds. The estate was insolvent, and the creditor sought to obtain payment of the debt owed from the proceeds of the RRSPs.  The application Judge held that the RRSPs devolve directly to the designated beneficiary – the creditor had no right to seek repayment of the debt from the proceeds of the RRSPs, even though the estate was unable to pay its debts.  The decision was appealed, and upheld by the Court of Appeal for Ontario.

So in Ontario it would appear the only way to get assets such as RRSPs and RRIFs clawed back into an estate is through the provisions of section 72 of the SLRA.

Thanks for reading and have a great weekend,

Natalia Angelini

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