Beneficiary Designations, Testamentary or Not?
I recently had a chance to attend a very interesting continuing legal education program organized by the Ontario Bar Association called: “Rights and Limitations on an Attorney under a Power of Attorney”.
The program was chaired by Natalia Angelini of our office and Kimberly A. Whaley of WEL Partners. Professor Albert Oosterhoff, Professor David Freedman, Thomas Grozinger and John Poyser presented their views on various questions surrounding beneficiary designations.
An interesting debate took place at the end of the program on the question of whether beneficiary designations are testamentary instruments.
Professor Oosterhoff presented his view that, beneficiary designations are not in fact testamentary acts and should therefore be considered inter vivos acts. One of the reasons cited by Professor Oosterhoff in this regard that I found compelling is the fact that a beneficiary designation does not have to comply with the formalities required of a Will. The fact is that a beneficiary designation is often executed in passing and the same considerations do not apply to such a decision as typically would apply to the making of a Will.
Then again, a testator can make a handwritten Will in passing which will be just as valid as if made in accordance with the formal requirements. However, the fact that it is made quickly and in passing does not necessarily mean that it is not a valid Will.
Another reason cited by Professor Oosterhoff in support of his position was that, in his opinion, beneficiary designations take effect when they are signed. By way of a further explanation, Professor Oosterhoff clarified that a beneficiary designation is not dependent upon the designator’s death for its “vigour and effect”, despite the fact that performance does not actually take place until the designator’s death.
This opinion was not universally shared by the panel and some of the attendees of the program. One significant issue that was raised was that if beneficiary designations are indeed not testamentary acts, there could be potential tax consequences necessitating legislative reform.
It will certainly be interesting to see whether a new case or legislative reform will shed some light on this question. I can certainly see the appeal and the logic behind Professor Oosterhoff’s view.
Thanks for reading.
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