Category: Beneficiary Designations
A recent decision of the Ontario Superior Court of Justice revisits the issue of whether a presumption of resulting trust should be imposed in the case of a beneficiary designation.
As our readers will know, the leading case on presumptions of resulting trust remains Pecore v Pecore, 2007 SCC 17, in which the Supreme Court summarized the state of the law relating to property that had been gratuitously transferred into joint tenancy with a non-dependent adult child: the asset becomes subject to a presumption that it is impressed with a resulting trust in favour of the parent’s estate. The presumption may be rebutted by evidence that it was, in fact, the parent’s intention to gift the jointly-held property to the adult child by right of survivorship.
Last year, we saw a couple of decisions apply the principles of Pecore to novel situations, potentially expanding the applicability of presumptions of resulting trust. For example, in Calmusky v Calmusky, 2020 ONSC 1506, the doctrine of resulting trust was applied to a RIF for which an adult child had been designated as beneficiary.
In Mak Estate v Mak, 2021 ONSC 4415, Justice McKelvey reviewed the issue of whether an asset for which a beneficiary designation was in place should be subject to the presumption of resulting trust. The plaintiff residuary beneficiaries of their mother’s estate sought an order setting aside the 2007 beneficiary designation for the mother’s RRIF, under which the defendant, their brother and another residuary beneficiary of the estate, was named. The evidence suggested that the deceased had relied upon the defendant, who lived with her and drove her to appointments after the death of the parties’ father in 2002.
After addressing the issue of whether a presumption of undue influence applied to the RRIF beneficiary designation (and finding that it did not because a beneficiary designation is not an inter vivos gift), Justice McKelvey turned to the issue of the principle of resulting trust, writing (at paras 44, 46):
In my view…there is good reason to doubt the conclusion that the doctrine of resulting trust applies to a beneficiary designation. First, the presumption in Pecore applies to inter vivos gifts. This was a significant factor for the Court of Appeal in Seguin, and similarly is a significant difference in the context of a resulting trust. Further, the decision of this Court in Calmusky has been the subject of some critical comment. As noted by Demetre Vasilounis in an article entitled ‘A Presumptive Peril: The Law of Beneficiary Designations is Now in Flux’, the decision in Calmusky is, ‘ruffling some features among banks, financial advisors and estate planning lawyers in Ontario’. In his article, the author comments that there is usually no need to determine ‘intent’ behind this designation, as this kind of beneficiary designation is supported by legislation including in Part III of the Succession Law Reform Act (the “SLRA”). Subsection 51(1) of the SLRA states that an individual may designate a beneficiary of a ‘plan’ (including a RIF, pursuant to subsection 54.1(1) of the SLRA.)
It is also important that the presumption of resulting trust with respect to adult children evolved from the formerly recognized presumption of advancement, a sometimes erroneous assumption for a parent that arranges for joint ownership of an asset with their child is merely ‘advancing’ the asset to such adult child as such adult child will eventually be entitled to such asset upon such parent’s death. The whole point of a beneficiary designation, however, is to specifically state what is to happen to an asset upon death.
As a result, the defendant was entitled to retain the proceeds of his mother’s RRIF, as the plaintiffs unable to establish any intention of their mother to benefit her estate with the asset without the benefit of a presumption of resulting trust.
In light of the conflicting applications of Pecore under the Calmusky and Mak Estate decisions, it will be interesting to see how this issue may be further developed in the case law. For the time being, however, it may be prudent to take care in documenting a client’s wishes to benefit an adult child by way of beneficiary designation in the same manner as we typically would in situations of jointly-held property.
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Life insurance can be an important part of an estate plan, be it taken out to fund payment of anticipated tax liabilities triggered by death, to assist in supporting surviving family members, or to equalize the distribution of an estate within the context of the gift of an asset of significant value (such as a family business) to one child to the exclusion of another, who can be designated as beneficiary of the policy.
In a time when many Canadians are facing their mortality and taking the pause from normal life as an opportunity to review and update estate plans, many Canadians are turning their minds to other aspects of estate planning, including supplementing an estate plan with life insurance. A recent Financial Post article suggests that life insurance applications have doubled during the pandemic, as more Canadians take steps to plan for the unexpected during this period of uncertainty.
At the same time, premiums for new permanent life insurance policies have increased by as much as 27%. While term life insurance policies may remain a more affordable option, they too are anticipated to become more expensive, with upcoming premium increases of up to 20%. The increase in premiums has been linked to lowering interest rates and restrictions to the investment options available to insurance companies.
Other changes to life insurance during the pandemic include the exclusion of the standard medical examination required in order to obtain some types of coverage. The maximum coverage offered by many providers without a medical exam has increased to reflect limitations to the ability for applicants to safely attend an in-person examinations. For other providers and types of plans, medical examinations are simply on hold.
Lastly, insurance companies have updated intake questionnaires to include COVID-screening questions. If an applicant is experiencing potential symptoms, they may be required to wait two weeks before taking out the policy, but are not typically ineligible from coverage altogether. Some insurers, however, are no longer offering new coverage to seniors or others who are at a higher risk of complications during the period of the pandemic.
One life insurance provider has already doubled its projected COVID-19-related payouts during 2020 from the figures it had released earlier this year. While there may have been changes to certain eligibility requirements and the cost of life insurance, it remains a suitable estate planning tool for many Canadians.
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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.
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The recent decision of Muth Estate, 2019 ABQB 922, a decision of the Court of Queen’s Bench of Alberta, is a cautionary tale (and a scary one, at that) for estate trustees when distributing an estate.
There, the estate trustee distributed the estate to herself and other beneficiaries of an estate, subject to a holdback. The holdback was insufficient to satisfy amounts owing to CRA. The estate trustee then brought an application for an order requiring that the beneficiaries indemnify her for the amounts owing to CRA.
The estate trustee moved for summary judgment. Summary judgment was denied. The court found that the respondent beneficiaries had no obligation to indemnify the estate trustee.
As background, the estate trustee retained an accountant to prepare estate tax returns. The accountant advised that a holdback of $25,000 was sufficient. The estate trustee therefore held back $25,000, and distributed the balance of the estate. Unfortunately, that accountant did not file the required returns. A second accountant then completed the returns. The tax owing and the second accountant’s invoice totalled $60,772.19. The estate trustee paid this amount, and sought indemnification from the beneficiaries for their share of this amount.
(Query: Whether the estate trustee would have a claim against the first accountant?)
Of note, when making the distributions, the estate trustee could have but did not ask the beneficiaries to provide an indemnity.
The court held that the Income Tax Act imposed personal liability on the estate trustee for unpaid taxes where a clearance certificate is not obtained.
The court went on to find that one of the duties of an estate trustee is to file tax returns and pay taxes owing. As the estate trustee breached her duties, she was not entitled to an indemnity. Relief may have been available if it was the beneficiaries who instigated or requested the breach. However, this was not the case.
The natural corollary of that principle [breach of trust at instigation of beneficiaries] is that if the beneficiaries did not instigate or request the breach, they cannot be obligated to indemnify the trustee. In a fiduciary relationship such as that between a trustee and a beneficiary, the logic of that corollary is that as between the two parties, one who had the obligation to perform the duty and failed and one who had neither the obligation nor the means to satisfy it, it is the former who should bear the consequences of the action or inaction.
Interestingly, the judge dismissed the estate trustee’s motion for summary judgment, but, notwithstanding the finding that the beneficiaries were under no obligation to indemnify the estate trustee, did not dismiss the proceeding. The beneficiaries did not ask for this relief. The matter was therefore allowed to proceed. However, the estate trustee was warned that “if she continues with the lawsuit, she may face a significant costs award if another judge comes to the same conclusion at the end of the suit.”
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My father used to have a saying: “Whatever drags gets dirty.” He would trot it out whenever one of us waited too long to do something and as a result, doing that thing became messy, complicated or impossible. For example: I was supposed to mail a letter. I didn’t mail the letter. Now I can’t find the letter. “Whatever drags gets dirty!”. Thanks, Dad.
Growing up, I thought that this was a widespread adage. Apparently, it isn’t. I searched it up on the internet and most of the results referred to Rupaul’s “Drag Race”.
The adage may fittingly sum up the lesson contained in the decision of the Nova Scotia Court of Probate in Kelly Estate, 2019 NSPB 1 (CanLII).
There, the deceased’s daughter and estate trustee, Carrie, brought an application for the possession of an urn containing the cremated remains of the deceased. The deceased died 13½ years before the application. Probate was granted 8 years before the application.
In the deceased’s will, cremation was requested, and Carrie was expressly given “the powers to decide what will happen with the said ashes.” This was consistent with the court’s observation that “Disposition of the deceased is one of the most fundamental tasks an executor/rix can undertake on behalf of the deceased.”
However, after the deceased’s death, the ashes were taken by Carrie’s sister, Cheryl. They remained at Cheryl’s home, apparently with the acquiescence of Carrie. The court noted that there was no evidence to suggest that there were prior attempts by Carrie to regain custody and control of the ashes over the 13½ years since death.
The court cited the BC decision of Re Popp Estate, 2001 BCSC 183 (CanLII) where the deceased’s husband, as estate trustee, was said to be entitled to control the disposition of the deceased’s remains, provided he did not act capriciously. As the husband was acting capriciously, he lost the right to deal with his spouse’s remains.
The court went on to find that by allowing the urn to remain in Cheryl’s possession for 13½ years, Carrie as estate trustee had in fact determined the disposition and final resting place of the urn: with Cheryl. A change of Carrie’s decision this late in the game “seems capricious at best or malicious at worst”, and the court was not prepared to order a transfer of the urn from Cheryl to Carrie.
When administering an estate, as in life in general, don’t let things drag.
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Lewis v. Lewis is a recent Ontario Court of Appeal decision in which the Appellants challenged the dismissal of their Application from the Superior Court of Justice. At issue was whether the Appellants’ mother, Marie Lewis, had the requisite capacity to execute new powers of attorney for property and personal care. The Appellants sought to invalidate the new powers of attorney and bring back into effect prior powers of attorney which Mrs. Lewis executed in 1995.
The Appellants raised several issues on appeal. In essence, they took issue with the application judge’s assessment of the evidence and exercise of his case management discretion.
In dismissing the appeal, the Ontario Court of Appeal emphasized the following principles regarding capacity:
- Since capacity is presumed, those objecting to the document(s) have the onus to rebut that presumption, with clear evidence, on a balance of probabilities.
- Similarly, those raising the issue of suspicious circumstances and undue influence bear the onus of establishing it, on a balance of probabilities.
- The fact that someone had various chronic medical conditions throughout their life does not automatically mean that they lacked capacity. It is open to the application judge to consider the evidence. In doing so, the application judge may reject any evidence that they find to be unreliable.
- Without evidence to the contrary, it is reasonable for an application judge to take “solace” from the fact that the individual executed their new powers of attorney before their solicitor of many years.
- It is reasonable for an application judge to refer to the statements of section 3 counsel, appointed by the Office of the Public Guardian and Trustee, concerning an individual’s expressed wishes.
Good things to keep in mind when dealing with capacity issues.
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Suzana Popovic-Montag and Celine Dookie
Judges are sworn to decipher, apply, and uphold the law, an exercise that takes great care and sense considering the ambiguity of statute, the discordant doctrines of interpretation, and the prevalence of emotional tinderboxes in litigation. Perhaps more challenging, however, is the judge’s task of navigating through brambles of facts.
In the Newfoundland and Labrador Supreme Court decision of O’Dea Estate (Re),  N.L.S.C. 178, Orsborn J. was imposed with the burden of sorting out a conflict between Michael and Shannon, who were named co-executors and whose acrimonious sibling relations are reminiscent of a previous blog. Contrary to the testator father’s wishes, in the two-and-a-half years since his death, neither sibling was appointed executor; instead, litigation between the two raged, with each accusing the other of fraudulent behaviour. In competing applications, Michael sought the appointment of the Public Trustee, whereas Shannon applied to have herself appointed sole executrix.
Justice Orsborn decided as follows: “By asking to have the Public Trustee appointed, Michael has effectively renounced his appointment pursuant to the will.”
A mere proposed solution was construed as a renunciation. Michael’s position was undermined by his willingness to see the estate depleted (by hiring the Public Trustee, a pricy endeavour) combined with his disinclination to assume the role of co-executor.
Other factors were present in this decision. Orsborn J. was reluctant to accede to Michael’s request for financial reasons, for the estate was not large and the Public Trustee could be expected to take a significant chunk out of what remained. It also mattered to him that the testator’s intention to have Michael and Shannon administer the estate be at least half-honoured. Additionally, the judge ascribed significance to the fact that the other estate beneficiaries, who were also children of the deceased testator, preferred Shannon’s claim.
O’Dea Estate is another case in which the court has emphasized its commitment to limiting costs with small estates, but more importantly, it suggests the court will draw an adverse inference when litigants seek to hand off their responsibilities to third parties.
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David Morgan Smith and Devin McMurtry
The Substitute Decisions Act (the “SDA”) was passed in 1992. It governs what happens when a person becomes incapable of managing their own property or personal care. Under section 3 of the SDA, if the capacity of a person in a legal proceeding is in issue, the Public Guardian and Trustee (the “PGT”) may arrange for the legal representation of that person. Section 3 also provides that the person shall be deemed to have the capacity to retain and instruct counsel.
Although section 3 seems to be fairly straightforward, the details surrounding the appointment and position of section 3 counsel are somewhat obscure. Cases such as Sylvester v Britton and Banton v Banton have added some clarity to the role of section 3 counsel. The recent case of Kwok v Kwok provides a further illustration as to when section 3 counsel is to be appointed.
In Kwok v Kwok, Jiefu Kwok was involved in two motor vehicle accidents in 2011. He suffered a traumatic brain injury as a result and commenced two legal actions in relation to the accidents. A capacity assessment was conducted in 2014, which revealed that Jiefu was incapable of taking care of himself and managing his own property. In 2015, Jiefu’s son, Derek, was appointed as his guardian for property and personal care. Derek later filed an application to be released from these roles as he stated that it was putting a strain on his relationship with his father. Derek’s mother, Ellie, brought an application to take Derek’s place and be appointed as Jiefu’s guardian of property and personal care.
The PGT took the position that section 3 counsel should be appointed to represent Jiefu and obtain his wishes before Ellie was appointed as Jiefu’s guardian of property and personal care. The PGT was of the view that Jiefu’s capacity assessment conducted in 2014 was outdated and that a more limited guardianship might be appropriate for him.
Counsel for Derek and Ellie (the “Applicants”) argued that section 3 counsel is to be used in cases where a capacity assessment has not already been conducted. They added that, since a capacity assessment was already conducted in this case, the appointment of section 3 counsel was inappropriate. Moreover, a primary concern for the Applicants was the high costs associated with the appointment of section 3 counsel.
The Court considered the arguments of the PGT and the Applicants and noted the following about the role of section 3 counsel:
- The appointment of section 3 counsel is a safeguard that protects the dignity, privacy and legal rights of a person who is alleged to be incapable
- Section 3 of the SDA does not make the appointment of legal representation mandatory
- In deciding whether to appoint section 3 counsel, the Court must consider the specific facts and issues in each case
- The Court can appoint section 3 counsel even in cases where a capacity assessment has already been conducted or where there is an existing Court order declaring that a person is incapable
The Court concluded that the appointment of section 3 counsel would not be in Jiefu’s best interests and would be a waste of resources. The Court made this finding based on the following reasons:
- There were no completing claims amongst Jiefu’s closest relatives as to who should be his legal representative. Both Derek and Ellie supported the appointment of Ellie as Jiefu’s guardian of property and personal care
- There was no evidentiary basis to question the validity of the 2014 capacity assessment
- A letter from Jiefu’s primary care physician regarding his current condition did not suggest that Jiefu’s condition had improved
- Jiefu attended Court and expressed that he supported the appointment of Ellie as his guardian of property and personal care
As a result, Derek was released from his role as Jiefu’s guardian for property and of the person and Ellie was appointed in his place.
Kwok v Kwok adds to a growing body of cases examining the role of section 3 counsel. It provides that the Court can appoint section 3 counsel even in cases where a capacity assessment has already been conducted or where there is an existing Court order declaring that a person is incapable. Furthermore, it indicates that the wishes of the incapable person are to be given a considerable amount of weight in assessing whether section 3 counsel is appropriate.
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Suzana Popovic-Montag and Celine Dookie
“There is no love lost between sisters [K] and [A].” So starts the endorsement in Nutzenberger v. Pryde, 2019 ONSC 5030 (CanLII).
There, the parents made a loan to A of $75,000. In their wills, the residue of the estate is to pass to the surviving parent. Both wills contained a clause that provided that if the other spouse was not living on the 30th day following the first spouse’s death, the $75,000 was to be forgiven.
Mother died on September 25, 2015. Father died on May 30, 2016.
K, as estate trustee of mother’s estate, brought a claim against A for the repayment of the loan. A moved for summary judgment on the claim.
Justice Harris agreed that summary judgment was appropriate. There were no primary facts in dispute, and no credibility issues. He dismissed the claim on two basis: first, mother’s estate had no standing to bring the claim, and second, the loan had been forgiven according to the terms of the wills.
On the first point, the loan came from father’s assets. Any interest that mother had in the loan passed to father under the terms of her will. Only father, or father’s estate had standing to pursue the loan.
Secondly, although the terms of the wills forgiving the loans were not “a model of drafting dexterity, to put it mildly”, the court interpreted the wills to mean that the intention of the parents was that either one could call in the loan while alive, but upon the death of the survivor, if no action was taken, the loan would be forgiven.
In determining the intention of the parties, the court looked at other terms of the wills. One term in both wills gave the estate trustee the discretion to pursue a loan. Another term acknowledged that a certain advance was in fact a gift. The term in question was “an awkward hybrid”. However, the court was able to conclude that the intention was that the loan would be forgiven if the surviving parent did not take any steps to collect on it.
As usual, more careful drafting may have avoided the litigation.
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The mysterious death of Jeffrey Epstein is generating a hubbub across the world. It reads like the beginning of an Agatha Christie detective novel and has a central figure who is reminiscent of a James Bond villain: a wealthy financier who is accused of operating a pedophilic sex trafficking ring. He has connections with scores of famous people: politicians, celebrities, royalty … In the early stages of his prosecution, he attempts to commit suicide; then, shortly afterwards, he is taken off suicide watch, the guards purportedly sleep through their checkups on him, and he is found dead.
In the aftermath, there have been conspiracy theories and much controversy, including an FBI investigation. The case has also prompted some questions regarding succession law, for it has just been reported that Epstein signed a new Will two days prior to his death. For the purposes of this post, we shall posit what would happen to the Will and the estate if this had all occurred in Ontario.
Validity of the Will
If Epstein indeed committed suicide, his suicidal mind would be considered in determining whether he had testamentary capacity, but it would not be conclusive (Topp Estate, 1983 CanLII 2329 (SKSU)). The applicable test is still the contextual factors set out in Banks v. Goodfellow.
If it comes to light that Epstein was murdered, then the Will could be attacked on the basis of undue influence. To achieve this, the objector would have to meet a fairly high evidentiary threshold, establishing “that what appears to be the testator’s will is not his or her will” (Kozak Estate (Re), 2018 ABQB 185).
As Epstein’s brother is named the sole beneficiary of the estate, if he is found to have murdered his brother, then public policy would likely bar him from benefiting from the estate (Papasotiriou, 2012 ONSC 6473).
It has been reported that the alleged victims’ lawyers are seeking to continue their action against the Epstein estate. One of these lawyers, Lisa Bloom, is demanding a freeze of the assets in the meantime. In Ontario, if the deceased dies during the time in which he or she is a defendant in litigation, Rule 11.02 of the Rules of Civil Procedure may allow for an action to be continued against the deceased’s estate.
If the alleged victims win their lawsuit against the Epstein estate, it is uncertain whether they will obtain their damages awards, for Epstein likely sheltered many of his assets. In Ontario, the claimants could launch claims of unjust enrichment and constructive trust in order to gain access to funds which have been sheltered amongst Epstein’s friends, family, and offshore accounts. Sadly for the accusers, the same dark cunning which enabled Epstein to evade justice was likely employed in securing his assets in inaccessible vaults. Just a little something to think about.
Thank you for reading … Have a great day,
Suzana Popovic-Montag and Devin McMurtry