Tag: beneficiary designation
One pertinent issue briefly discussed in the recent webinar I attended was that of the effect of the March 2020 Calmusky decision upon estate planning.
In Calmusky v. Calmusky, the Court decided that assets held in a Registered Income Fund (RIF) were presumed to constitute a resulting trust, instead of a direct transfer to the named beneficiary of the RIF. The anticipated impact of this decision on estate planning and administration – and, by proxy, litigation – has caused quite a stir in the legal community.
In the “Wills and Estates Refresher” webinar, the presenters expressed frustration with Calmusky and the complications of its application to their own estate planning practices. After all, designating a beneficiary of a RIF or similar investment account is an excellent tool an estate planner can use to transfer assets outside of a testator’s estate, thus reducing estate administration tax for a given estate. Imposing a resulting trust upon the assets in these accounts to the benefit of the estate quite explicitly defeats the purpose of using such an estate planning mechanism.
The presenters suggested that the estate planning bar was not overly enthusiastic about following Calmusky, for the reasons stated above. In the very recent 2021 decisions of Munro v. Thomas (May) and Mak (Estate) v. Mak (June), the Court was confronted with beneficiary designation fact scenarios quite similar to Calmusky, and decided quite differently. Mak Estate, in particular, directly addressed the legal reasoning in Calmusky and came to the opposite conclusion regarding the question of whether the assets ostensibly transferred to a designated beneficiary ought to be presumed to be held in resulting trust for the benefit of a deceased’s estate. This should be promising to estate planners nervous about the implications of Calmusky over the past year.
However, as Calmusky, Munro, and Mak Estate were all determined at the level of the Ontario Superior Court, until we hear otherwise from the Court of Appeal or Ontario Legislature, the practical impact of Calmusky is in a state of legal limbo.
Thank you for reading!
Calmusky v. Calmusky is a recent decision that determines the issue of entitlement to certain joint assets. The dispute appears to be a fairly typical one, in that we have an adult child, Gary, who was a joint bank account holder together with his father. Gary claims that after his father’s death the joint account funds passed to him by right of survivorship. Gary’s brother, Randy, argues that the joint account funds revert to the estate.
The Court reviewed the evidence surrounding the opening of the joint account, as well as the making of the father’s Will that happened around the same time. In applying the principles elicited from Pecore, the Court concluded that Gary had not satisfied the burden of proving that his father intended to gift Gary with the remaining funds in the joint account. In so doing, the Court noted the insufficiency of the corroborative evidence relied upon by Gary. It described the bank documentation as “bare bones”, and found the evidence of the bank personnel insufficient to support the conclusion that Gary’s father wanted him to have the beneficial entitlement to the funds.
Nothing new here…so far. But what makes this case noteworthy is the disagreement over the father’s RIF funds. The father designated Gary as the beneficiary of his RIF. Gary claims that these funds belong to him as the designated beneficiary, whereas Randy asserts that the funds belong to the estate. Randy’s argument was that the law relating to the presumptions applicable to annuities and/or life insurance contracts applies by analogy to RIFs, whereas Gary argued that there is no binding authority in Ontario that extends the principles in Pecore to RIF designations.
The Court agreed with Randy, reasoning that the principles set out in Pecore apply more generally to other gratuitous transfers of property interests. The Court also saw it as sensible from a policy perspective that the evidentiary obligation be on the transferee or designated RIF beneficiary. In coming to these conclusions, the Court agreed with the obiter comments in McConomy, another lower court decision, that the principles in Pecore should apply to the RIF designation. The Court also agreed with the reasoning of the Manitoba Court in Dreger, viewing that case as providing additional support for the conclusion that resulting trust presumptions apply to the beneficiary designation under a RIF.
After deciding that the resulting trust principles applied, the Court turned to assessing the father’s intention, again finding that the evidence of the bank personnel and bank documentation was insufficient to corroborate Gary’s position. Thus, the RIF funds were held to form part of the estate.
It does not appear that the Court considered the legislation that uniquely applies to beneficiary designations (e.g. Income Tax Act, Succession Law Reform Act or Insurance Act), which could support the argument that a RIF should be differentiated from a joint account.
Although I expect that this decision may be met with some criticism, until the issue is addressed by a higher court, the case raises several concerning questions – What does it mean for banks, investment advisors and financial planners? Are they now obliged to recommend that their clients seek legal advice to ensure that their intention is documented? Can banks no longer rest assured that they are free to pay out designated funds after the account-holder’s death? Hopefully, the answers to these questions and more will become clear to us in due time.
Thanks for reading and have a great day,
Natalia R. Angelini
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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Let’s acknowledge one thing from the start – no one looks forward to preparing a will. We may have the best of intentions, but death is something that few want to consider.
For this reason, there is often delay and procrastination in creating an up-to-date will – and tremendous relief when you finally get it done. You walk out of the lawyer’s office, breathe a sigh, and thank the heavens you don’t have to go through that again, at least for a very long time.
But, if like most people, you have the dual intention of ensuring your assets go to your intended beneficiaries, and ensuring the estate settlement process is straightforward and as easy as possible on your family, then you’ve still got some work to do to finish the job.
It’s not a lot of effort, but there are some essential steps to ensuring your wishes are carried out easily and as you intended. Here are three to consider:
- Store your will safely – and where people can find it: We get it – you may not want your house cleaner to review the contents of your new will. But hiding it in a place that no one can find isn’t the answer. Courts need the original copy of your will for a smooth probate process, so don’t make it hard to locate. Whether it’s stored at your lawyer’s office, or registered with the court, or stored in a filing cabinet at home, make sure that you and your loved ones remember where it is and know how to access it. We explored this issue in more detail here:
- Make a list of your assets: Don’t assume that your family knows what you own. Most of us have assets scattered through numerous accounts and institutions, and property (such as cars, art, and jewelry) could be in more than one location. You may also have assets that you inherited from others. So make it easy for your executor – keep an up-to-date list of your assets (including account numbers, user names and passwords for virtual assets, and insurance policy numbers) with your will.
- Talk to your family: Ideally, before you drafted your will, you talked to all family members with any expectation of inheritance and told them your estate intentions. This gives you the opportunity to listen to any concerns and to explain why you’re planning to distribute your assets in a certain way. But even if you didn’t talk to family members before drafting your will, it’s not too late. To minimize the chances of an estate dispute, let family members know what’s in your will. In many cases, just letting people know the reasons behind your estate decisions is enough to cut off potential disputes before they happen.
Thank you for reading,
Beneficiary designations for a life insurance policy can be an important estate planning tool. However, as with any testamentary document or disposition, questions can arise about the insured’s actual intentions after death.
In the recent decision of Sun Life v Nelson Estate et al., 2017 ONSC 4987, the Court was asked to resolve such an ambiguity by considering the validity of an insurance declaration under the deceased’s Will and the validity of a change of beneficiary designation on file with the insurer.
Juanita (the “Deceased”) died in December 2009. The Deceased was entitled to group life insurance coverage with Sun Life in the amount of $148,500.00. Following the Deceased’s death, Sun Life deposited the proceeds of the policy into Court. The Deceased’s two children (the “Respondents”) brought a Motion for a declaration that they were solely entitled to the proceeds.
The Deceased had been married to the respondent, Justin Nelson (“Justin”), since 2006. Following the Deceased’s death, Justin signed an acknowledgment that the Respondents were entitled to the proceeds of the policy. He had made no claim to the proceeds since the Deceased’s death, and his whereabouts were unknown as of the hearing of the Motion.
Beneficiary Declarations Under the Insurance Act
Pursuant to section 190 of the Ontario Insurance Act, an insurance may designate the insured, the insured’s personal representative or a specific beneficiary pursuant to the insurance contract or a declaration, including a declaration under the insured’s Will.
Section 171(1) of the Act sets out the criteria for a valid declaration. The declaration must be made by way of an instrument signed by the insured. The declaration must also be an instrument with respect to which an endorsement is made on the policy, that identifies the contract, or that describes the insurance or insurance fund (or a part thereof).
The Issue in Sun Life v Nelson Estate
In 2007, the Deceased’s employer’s group policy with Sun Life was terminated and transferred to Desjardins Financial Security (“Desjardins”). The Deceased completed an application for enrolment and an irrevocable beneficiary designation in favour of the Respondents. She also advised her financial advisor that she had changed the beneficiary for the policy from Justin to the Respondents.
However, after the Deceased’s death, it was discovered that her coverage had remained with Sun Life instead of being transferred to Desjardins because she was disabled at the time of the transfer. As a result, there were two beneficiary designations in the Deceased’s file.
The Deceased’s Last Will and Testament also included a beneficiary declaration that directed the “proceeds of the insurance policy” to be held in trust for the benefit of the Respondents. The term “insurance policy” was not defined in the Will, and the Deceased was insured under two policies at the time of her death.
Thus, the Court was asked to consider the validity of the declaration under the Will and the validity of the change of beneficiary designation in 2007.
Justice Brown’s Decision
After reviewing the facts, the Honourable Justice Carole Brown concluded that the declaration under the Will was ambiguous and did not refer to a specific insurance policy. Accordingly, the declaration under the Will failed.
However, with respect to the change of beneficiary designation form, the Court was satisfied that the Deceased clearly intended for the Respondents to be the beneficiaries of the policy. The evidence before the Court included the Deceased’s statements to the Respondents, the change of beneficiary designation form and the fact that Justin had signed an acknowledgment that the Respondents were the beneficiaries of the policy.
In the result, the Court held that the change of beneficiary designation form was valid within the meaning of section 171(1), and ordered that the proceeds be paid out to the Respondents equally.
Thank you for reading,
Umair Abdul Qadir
If a Registered Retirement Savings Plan passes outside of an Estate, for example to a spouse or child, who pays the tax – the recipient beneficiary or the Estate?
In order to answer this question, first consider the terms of the Will.
If the Will does not clearly set out who is responsible, attention must be turned to the statute and common law.
According to section 160.2(1) of the Income Tax Act, the deceased testator and the recipient of the RRSP are jointly and severally liable for the payment of the tax. The section specifically states that “…the taxpayer and the last annuitant under the plan are jointly and severally, or solidarily, liable to pay a part of the annuitant’s tax…”.
Ontario common law has, however, held that the payment of any tax liability with respect to an RRSP remains the primary obligation of the estate. Payment should be sought from the RRSP recipient, only if there are insufficient assets in the estate to satisfy the tax obligation.
In Banting v Saunders, Justice J. Lofchik held that:
“…the estate, rather than the designated beneficiaries, is liable for the income tax liability arising from the deemed realization of the R.R.S.P.’s and R.R.I.F.’s so long as there are sufficient assets in the estate including the bequest to Banting, to cover the debts of the estate and it is only in the event that there are not sufficient assets in the estate to cover all liabilities that the beneficiaries of the R.R.S.P.’s and the R.R.I.F.’s may be called upon.”
Nonetheless, as set out in O’Callaghan v. The Queen, the CRA may first seek payment directly from the RRSP recipient, instead of the estate, especially if there is a possiblity that there are insufficient assets in the estate to satisfy the tax.
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As an estate planning tool, legal and financial advisors often impress upon their clients the benefits of designating beneficiaries of certain instruments such as RRSPs, TFSAs, and life insurance policies. In the absence of a beneficiary designation, the proceeds will fall into the estate and attract Estate Administration Tax and be available to creditors of the Deceased, possibly thwarting the objectives of the estate plan.
Pensions, however, are a special case. Like Part V of the Succession Law Reform Act, section 48(7) of the Pension Benefits Act is remedial in nature and contemplates the necessity to provide safeguards for surviving spouses, including common law spouses. In short, if a beneficiary is not designated on the death of a member of a pension plan, the proceeds do not fall into the estate; rather, the surviving spouse is entitled to the asset.
But what if the spouses have entered into a cohabitation agreement prior to the relationship? What kind of language will suffice to contract out of this statutory entitlement if the pension plan member had not designated a beneficiary during his or her lifetime?
In Burgess v. Burgess Estate, the Ontario Court of Appeal considered whether a former wife of the deceased was entitled to receive all of the benefit available under the deceased’s deferred profit sharing plan for which she was the sole designated beneficiary, or whether she was entitled only to one-half of the benefit in accordance with the parties’ separation agreement, which read as follows:
“Except as specifically provided, neither the Husband nor the Wife will make a claim to a share in any pension of the other, including but not limited to any company pension plans, registered retirement savings plans and registered home ownership plans, provided that the Wife shall be entitled to one-half of the benefits under the Husband’s deferred profit sharing plan.” (emphasis added)
As a result of the express and specific wording of the separation agreement, the Court concluded that the former wife was restricted to receiving half of the benefit.
Following the principle in Burgess, the Ontario Superior Court of Justice in Conway v. Conway Estate, concluded that the separated spouse in similar circumstances was entitled to receive the pension benefit when there was no express reference in the Separation Agreement precluding her entitlement:
“…there is no provision like the one in Burgess. There is no express term which has the effect of revoking the designation of [the separated spouse] as beneficiary of the pension benefit or precluding her from receiving the benefit as beneficiary.” (emphasis added) (at para. 26)
Accordingly, having regard to the foregoing authorities, in order for a spouse to contract out of a benefit, the Court would appear to require specific and express language to such effect. A general release will not be sufficient.
It is a nice question whether a statutory entitlement under the Pension Benefits Act is to be considered as being in exactly the same category as a beneficiary designation. Certainly the plan which passes to the recipient is the same in either case and, arguably, the hurdle for contracting out of a statutory entitlement may be higher as compared to a beneficiary designation. In any event, the caselaw should be equally applicable to either situation
Thanks for reading,
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It’s 8:30 am, you’ve just entered your office, and you get a call from the common-law spouse of one of your long-term clients. It’s bad news – your client is in palliative care and has a will from 2001 that he urgently needs to update. Time is of the essence.
You and your assistant can squeeze in time late in the day to see the client at the hospital. But you know it’s a tricky situation that’s fraught with potential problems. Here are a few steps to consider that could protect you and your client before you head bedside.
- Make sure you have the expertise they need: On the initial call, be sure to ask specific questions about what the client needs done. If there are trusts or other complex arrangements involved, assess whether you have the expertise to assist. If death is imminent, the last thing your client can waste is time in trying to line up another lawyer. So do your due diligence up front.
- Assess capacity: Capacity issues could be front and centre for clients who are close to death. If possible, contact an attending doctor, explain the legal test for capacity and ask them to confirm his or her opinion in writing as soon as possible, even on an interim basis by email.
Learn more about capacity issues here: https://estatelawcanada.blogspot.ca/2010/12/when-is-doctors-opinion-on-capacity.html
- Talk one-to-one: You need, and must insist on, time alone with your client, both to do your own capacity assessment and to minimize any unsubstantiated allegations of undue influence. If the situation is at all suspicious, you have a duty to inquire to satisfy yourself that the client is fully acting on their own accord. This is especially important if the client has had multiple marriages or common-law partners, or has been estranged from family members. If you are not satisfied, you may choose to decline to act.
- Take notes and/or video: Your notes could potentially be used as evidence in a will challenge or solicitor’s negligence action, so be sure to set out the basis for your opinion on issues such as capacity and undue influence, rather than simply stating a conclusion. Consider having a junior lawyer attend with you, to provide a more complete base of evidence. Videotaping the interview may also be helpful, as it can provide important evidence if the will is ever challenged.
Finally, if you have older clients who have indicated a need to revise their will, be proactive. Send them this link and encourage them to act now to avoid the potential drama and perils of a deathbed will: http://globalnews.ca/news/1105176/the-mortality-of-deathbed-wills/
Thanks for reading,