Yesterday, I blogged about beneficiary designations, alterations, and revocations under wills, and briefly reviewed some of the relevant recent case law. Today, I review a number of practical considerations that solicitors may wish to keep in mind when asked by clients to assist in making or changing beneficiary designations of plans:

• Avoiding Exposure to Probate Fees – Generally, if a client’s instructions are to make a new beneficiary designation under a will, it is prudent to include the related terms prior to the vesting clauses rather than amongst other dispositive provisions of the will to assist in avoiding risk that the plan proceeds may be exposed to estate administration tax.

• Consistency with Other Designations – Generally, the last valid beneficiary designation will govern the transfer or distribution of the proceeds after the original plan holder’s death.  This raises the issue of what may happen if it is not known which was the more recent beneficiary designation. For example, we often encounter holograph wills that are valid testamentary documents, yet undated.  If an undated document amends or revokes a beneficiary designation, it can be difficult to determine whether this predated or followed another beneficiary designation.

• Ability to Designate a New Beneficiary – It may not always be the case that the client is authorized to appoint a new beneficiary for a life insurance policy or other plan.  A previous beneficiary designation may be irrevocable, the plan may have been validly assigned to someone else, or the plan may be subject to an agreement that will result in its proceeds being impressed with a resulting or constructive trust notwithstanding any attempted amendment or revocation of the beneficiary designation. For example, in Moore v Sweet, 2018 SCC 52, an ex-wife who had been paying life insurance premiums pursuant to her agreement with the deceased that she would remain the designated beneficiary was successful in asserting that the policy proceeds were subject to a constructive trust in her favour on the basis of unjust enrichment.  As the Supreme Court of Canada affirmed, even an irrevocable beneficiary designation cannot bar equitable relief.

• Section 72 Issues – Clients with dependants should be cautioned regarding the possible impact of dependant’s support claims commenced under Part V of the Succession Law Reform Act and, in particular, the chance that assets that may otherwise pass to a designated beneficiary could be “clawed back” into the estate for the purposes of funding payment to a dependant who has been left inadequate support pursuant to section 72.

• Will Challenges – If a will that includes a beneficiary designation is challenged, it is possible that the entire document may be set aside, including the beneficiary designation, amendment, or revocation.  Standalone beneficiary designations may separate the issue of the validity of the beneficiary designation from the validity of a will, where other issues that may not otherwise impact a beneficiary designation may result in a will challenge.

• Compliance with Statutory Requirements and/or Those of the Financial Institution – Legislation, such as the Insurance Act, and financial institutions may have their own requirements in order for a beneficiary designation, alteration, or revocation to be valid.  When in doubt, it may be prudent to confirm with the relevant financial institution that the proposed form of beneficiary designation is compliant with their requirements.

• Plans to Equalize Inheritances – If the proceeds of a plan are intended to equalize gifts made to different individuals (for example, two adult children), it is important that estate planning clients understand the implications that may result if a plan is depleted or no longer exists at the time of their death.  In the case of life insurance policies or other plans for which premiums are payable, it is possible that a policy may lapse if premiums are not paid for a period preceding the client’s death, such as during a period of incapacity. 

• Tax Issues – The disposition of some plans, such as RRSPs, to someone other than the plan-holder’s spouse may trigger significant taxes.  It is important that clients consider how they would like the tax liability relating to a plan to be borne and, if it is not intended that it be treated as any other liability of the estate, it should be documented within their testamentary documents to avoid any confusion. 

• Presumptions of Resulting Trust – In 2020, Calmusky v Calmusky, 2020 ONSC 1506, saw a novel application of the presumption of resulting trust to a RIF for which an adult child had been designated as the beneficiary.  While it appears that subsequent decisions have not followed Calmusky, it remains important that a client’s wishes with respect to the gift of an asset to an adult child by right of survivorship, inter vivos transfer, or even by beneficiary designation is clearly documented to assist in rebutting any presumption of resulting trust that may apply now or in the future.

Thank you for reading,

Nick Esterbauer