Tag: Beneficiary Designations
There are relatively few circumstances in which a court will stifle, rather than vindicate, a deceased person’s testamentary intentions. If a testator wished to give all of his or her assets to a charity for cats, but did not leave adequate funds for his or her dependants, the testator’s will may be varied in order to support the dependants. When a deceased person assigned insurance policy proceeds to his spouse, but previously he had promised an ex-spouse that if she paid the insurance premiums, the proceeds would go to her, the courts interceded, in spite of the designation to the spouse, and awarded the proceeds to the ex-spouse on the basis of unjust enrichment.
In this blog we shall discuss Calmusky v. Calmusky, a recent decision which may have added another context in which courts can upset a deceased person’s testamentary intentions.
Gary and Randy were the sons of Henry, the deceased. In Henry’s last will, he left the residue of his estate to one of Randy’s children and his, Henry’s, nephew. Upon Henry’s death, his interests in bank accounts jointly held between he and Gary were transferred to Gary by right of survivorship. He also made Gary a joint holder of his Registered Income Fund (RIF).
Part of the court’s decision was conventional: since the account transfers were gratuitous transfers between a parent and an adult child, according to Pecore, there is a presumption of resulting trust (with the transferee, Gary, holding the accounts in trust for Henry’s estate) that must be rebutted, with evidence of a donative intent on behalf of the parent, before the transferee can retain the assets. Since Gary could not show donative intent, the bank account funds were to revert to Henry’s estate. And then came the unconventional: the court determined that the rule in Pecore applied to the RIF:
“I see no principled basis for applying the presumption of resulting trust to the gratuitous transfer of bank accounts into joint names but not applying the same presumption to the RIF beneficiary designation.”
By stretching the rule in Pecore to this new context, the court may have burst open floodgates which protect beneficiaries of RIFs, pension plans, life insurance policies, and more. And as was observed in our recent blog on Calmusky, there is “legislation that uniquely applies to beneficiary designations (e.g. the Income Tax Act, the Succession Law Reform Act or the Insurance Act)” that appears to conflict with the decision.
And then there is the policy dilemma arising from Calmusky: if the designation is not good enough, what is? Should an affidavit be executed to corroborate the designation, or should a testator put a provision in his or her will that crystallizes existing beneficiary designations? The trouble with the latter option, which ostensibly seems to be the surest option, is that the subject matter of the beneficiary designation may, since it is mentioned in the will, have to be listed in the probate application and the Estate Information Return – leading to heightened expenses.
The last time that estate solicitors were put in such a dubious position, arguably, was when the court in Re Milne ruled that a will is a trust, thereby rendering “basket clauses”, a common estate solicitor’s tool, precarious or even invalid. Now, while Calmusky stands, there is no clear best practice with respect to bullet-proofing beneficiary designations. And sadly, Gary, who prior to Calmusky would have received the RIF funds, is left disinherited; and Henry, who prior to Calmusky would have had reason to trust in the RIF beneficiary designation, may have had his testamentary intentions frustrated.
Thanks for reading – have a great day,
Ian Hull and Devin McMurtry
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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Earlier this year, we argued the appeal in Moore v Sweet before the Supreme Court of Canada. On Friday, the Court released its decision, which has provided what, in our view, was necessary clarification of the juristic reason component of the test for unjust enrichment. The Supreme Court has also confirmed the circumstances in which a constructive trust remedy is appropriate within the context of unjust enrichment. Our firm was pleased to argue the appeal at the Supreme Court in February 2018 and to learn on Friday of our client’s success in the reversal of the split decision of the Ontario Court of Appeal.
The facts of the case were relatively straightforward: The appellant had previously been married to the deceased. Around the time of their separation, the appellant and the deceased entered into an oral agreement whereby the appellant would remain the designated beneficiary for the life insurance policy on the deceased’s life on the basis that she would continue to pay the related premiums. The appellant paid the premiums on the life insurance policy until the deceased’s death approximately 13 years later, while, unbeknownst to the appellant, the deceased named his new common law spouse (the respondent), as irrevocable beneficiary of the policy soon after the oral agreement was made. At the time of his death, the deceased’s estate was insolvent.
At the application hearing, Justice Wilton-Siegel awarded the appellant the proceeds of the life insurance policy on the basis of unjust enrichment. The respondent was successful in arguing before the Ontario Court of Appeal that the designation of an irrevocable beneficiary under the Insurance Act was a “juristic reason” that permitted what was otherwise considered the unjust enrichment of the respondent at the appellant’s expense. The appellant was subsequently granted leave to appeal to the Supreme Court of Canada.
Justice Coté, writing for the Majority, agreed that the test for unjust enrichment was flexible and permits courts to use it in the promotion of justice and fairness where required by good conscience. The Court clarified that the juristic reason permitting an unjust enrichment needs to justify not only the enrichment of one party but also the corresponding deprivation of the other party. While the irrevocable beneficiary designation may have required the payment of proceeds for the policy to the respondent, it could not be considered as also requiring the appellant’s deprivation of the proceeds to which she was entitled under the oral agreement. The Court found that a designation of an irrevocable beneficiary under the Insurance Act precludes claims by creditors of an estate, but it does not state “with irresistible clearness” that it also precludes a claim in unjust enrichment by a party who has a contractual or equitable interest in the proceeds.
While reaching the opposite result, the dissent acknowledged that this was a difficult appeal, in which both parties were innocent and had strong moral claims to the proceeds of the life insurance policy.
We thoroughly enjoyed the opportunity to argue this case before the Supreme Court of Canada earlier this year and look forward to following the role of this decision in further developments in the Canadian law of unjust enrichment.
Thank you for reading.
An insured may designate a beneficiary of the proceeds of a policy of insurance. This can be done by a beneficiary designation that is signed by the insured. No other formality is required.
An insured may also designate a beneficiary of a policy of insurance in a will.
What happens, however, if the will is found to be invalid?
Section 192(1) of the Insurance Act provides that a designation in an instrument purporting to be a will is not ineffective by reason only of the fact that the instrument is invalid as a will.
This may be due to the different procedural requirements of due execution of a will, versus the minimal procedural requirements of the execution of a beneficiary designation. Thus, a document signed by the testator/insured but not witnessed by two witnesses may be ineffective as a will, but may be effective as a beneficiary designation.
Different considerations may apply where the will is found to be invalid on the basis of lack of testamentary capacity. If the testator/insured is found to be incapable of executing a will, it may follow that he/she is incapable of executing a beneficiary designation. However, the applicable burden of proof may lead to a finding that one is incapable of signing a will, but capable of signing a beneficiary designation. In Fawson Estate v. Deveau, 2016 NSCA 39 (CanLII), the Court of Appeal was faced with a case where a will executed on April 23, 2004 was found to be invalid. The estate trustee then moved for summary judgment in a separate proceeding brought to declare beneficiary designations executed shortly before and after the execution of the Will invalid. The motion for summary judgment was dismissed, as the judge found that there was a genuine issue for trial. The Nova Scotia Court of Appeal agreed.
In dismissing the appeal, the Court of Appeal referred to the different burdens of proof. In the will challenge, the burden was on the will challenger to show suspicious circumstances. The burden then shifted to the propounder to show that the testator had testamentary capacity. In the challenge to the beneficiary designations, the burden was said to be on the challenger, throughout, to show that the insured did not have capacity to execute the beneficiary designations.
In a case of undue influence, a will found to be invalid due to undue influence may not necessarily mean that the insurance beneficiary designations were the result of undue influence: a separate analysis is required.
In conclusion, when considering rights and remedies in the face of a potentially invalid will, do not immediately assume that an invalid will means that insurance beneficiary designations contained in the will are invalid as well. A deeper analysis of the reason for the invalidity is necessary.
Thank you for reading.
Today on Hull on Estates, Natalia Angelini and Rebecca Rauws discuss the decision in Sun Life v Nelson Estate, 2017 ONCA 4987, and beneficiary designations for insurance policies.
Should you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog.
Certain types of assets, such as life insurance proceeds or RRSPs, may be designated to be paid out directly to a beneficiary upon the death of the owner. In such a case, the asset does not pass through the estate and Estate Administration Tax is not paid on the value of the asset. It is not strictly required that they be referred to in a will, as the beneficiary designation in the plan itself is sufficient to gift the asset on death. However, it is possible, as per section 51(1) of the Succession Law Reform Act, RSO 1990, c S.26 (“SLRA”), to refer to a plan in a will, either to confirm the designation in the plan itself, or to make the designation.
However, an issue may arise if there is a beneficiary designated in both the plan and the will, but the named beneficiary is not the same. It is then necessary to determine which designation will prevail.
Section 52(1) of the SLRA states that a “revocation in a will is effective to revoke a designation made by instrument only if the revocation relates expressly to the designation, either generally or specifically.” Accordingly, if there is a conflict between the will and the plan with respect to the designated beneficiary, as long as the will expressly refers to the plan designation, the will should govern the ultimate beneficiary of the plan. Moreover, it may be possible to determine which designation will prevail by looking at which was made most recently. As per section 52(2) of the SLRA, a later designation revokes an earlier designation, to the extent of any inconsistency.
There is also case law to support overriding a plan designation based on the clear intention of the testator. In McConomy-Wood v McConomy, 2009 CanLII 7174 (ONSC), the testator designated one of her three children, Lisa, as the beneficiary of her RRIF a few weeks prior to her death. However, throughout her life, it was the testator’s consistent intention, frequently expressed to her children, that they would all be treated equally and that all of her assets would be divided equally amongst the three of them.
The will did not expressly refer to the designation, but it named Lisa as the sole estate trustee to hold the assets of the estate in trust for all three siblings equally. The judge in McConomy-Wood v McConomy therefore found that the intention of the testator with respect to the RRIF designation was that her daughter hold the proceeds of the RRIF on the same terms as the estate.
The most prudent way of dealing with potential conflicts is to be aware of beneficiary designations in the plans themselves. If you choose to also refer to the designation in your will, take the time to verify who the named beneficiary is and to be consistent between the will and the plan, in order to avoid any conflicts or confusion.
Thanks for reading.
We have extensively discussed the application of the doctrine of suspicious circumstances in the context of a challenge to a Will on this blog. Interestingly, in David v TransAmerica Life Canada, 2015 ONSC 5192, the Honourable Justice Price held that a beneficiary declaration for a life insurance policy was invalid due to the presence of suspicious circumstances surrounding the preparation of the declaration.
Hollis David (the “Deceased”) died in December 2012. Prior to his death, the Deceased held a life insurance policy worth $100,000 through TransAmerica Life Canada (the “Policy”). In 1996, the Deceased submitted a change of beneficiary form to the insurer that designated his children from his second marriage, Rhinda and Randolph (the “Respondents”), as the sole beneficiaries of the Policy.
In 2011, the Deceased informed his second wife that he was “in trouble” with the children from his first marriage, who had learned of the existence of the Policy. Shortly thereafter, the Deceased prepared a new change of beneficiary form for the Policy (the “2011 Form”). The 2011 Form initially provided that the Deceased’s daughter from his first marriage, Lystra David (the “Applicant”), would receive 80% of the proceeds of the Policy. The number “75” was later written over the 80% designation, although it was not clear if this alteration was made before or after the Deceased signed the form. The 2011 Form provided for the Respondents to each receive 10% of the proceeds and the Deceased’s third wife to receive the remaining 5% of the proceeds of the Policy.
Even though the Deceased had worked in the financial services industry and at TransAmerica, there were a number of deficiencies in the 2011 Form. TransAmerica did not process the 2011 Form because the Deceased had only designated a “contingent beneficiary” with respect to 80% of the Policy proceeds. Upon the Deceased’s death, TransAmerica notified the Applicant that the 2011 Form was not a valid declaration, and the Respondents were still the sole beneficiaries of the Policy in accordance with the 1996 declaration.
The Applicant commenced an application seeking a declaration that the 2011 Form was valid. In the alternative, the Applicant sought an order rectifying the form. The Respondents commenced a cross-application and argued that the 2011 Form was null and void due to the presence of suspicious circumstances.
The Deceased had signed in the space provided for the witness on the form and only designated a “contingent beneficiary” with respect to 80% of the proceeds. However, the Court held that the 2011 Form would still meet the formal requirements for a declaration under section 171 of the Insurance Act if it could be shown that the form was signed after the alteration to the percentages was made. The Court held that the Applicant had not shown, on a balance of probabilities, that the form was signed after the alteration was made. As a result, the Court concluded that the 2011 Form had not been signed by the Deceased, as required by section 171 of the Insurance Act.
Justice Price then went on to consider the issue of suspicious circumstances. In the context of a Will challenge, the propounder of the Will is generally assisted by a rebuttable presumption that the testator had knowledge and approval of the contents of the Will and the necessary testamentary capacity to make the Will. However, this presumption is rebutted when suspicious circumstances are present, and the propounder of the Will has the burden of proving knowledge, approval and capacity.
Starting at paragraph 108 of his judgment, Justice Price highlighted a number of suspicious circumstances in the present case. For example, the Deceased made numerous errors in completing the form, despite his background in the financial services industry and his familiarity with TransAmerica’s practices. The form contained the social insurance number for the Applicant but not the Respondents, suggesting that the Applicant may have had input in the preparation of the 2011 Form. The Court also noted that the Deceased had told his second wife that he was “in trouble” with his children after they learned of the Policy.
Given the existence of suspicious circumstances, Justice Price held that the Applicant was required to show, on a balance of probabilities, that the Deceased had knowledge and approval of the contents of the 2011 Form and an understanding of its effects. Justice Price concluded that the Applicant’s evidence was not credible and she had not satisfied the burden of proof.
In the result, the Applicant’s application was dismissed and the proceeds of the Policy were paid out to the Respondents in equal amounts in accordance with the prior beneficiary declaration.
Thank you for reading.
Umair Abdul Qadir
In a devoted sports city such as New Orleans, it is not surprising to learn that both the NFL’s New Orleans Saints, and the NBA’s New Orleans Pelicans, are owned by one person, Tom Benson. Recently though, New Orleans sports fan are turning their gaze away from the stadium, and instead to the Court where a dispute has ensued over Benson’s mental capacity and the consequence of this on his estate plan, estimated to be worth approximately $1.87 billion.
A recent article in the New York Times, highlights Benson’s recent announcement that when he passes away, ownership of the Saints and Pelicans are to be passed onto his wife of ten years, as opposed to his daughter, Renee Benson, and grandchildren. As a result of this, a claim was commenced to determine whether Benson is mentally capable and whether Benson’s property should be managed on his behalf. It is alleged that not only is Benson mentally unfit but also is being manipulated by his wife.
In response to allegations of incapacity, Benson’s lawyers argue that “…his decisions to give the teams to his wife, and not his daughter and her children, was not a result of pique of anger, but years of disappointment”.
Any finding with respect to Benson’s capacity will surely impact his estate plan and ability to designate a beneficiary.
As Hull & Hull blog readers know, this is not the first sports franchise where ownership is put into question because of capacity – recent blog’s found here and here tell the tale of Donald Sterling and the Los Angeles Clippers.
The above dispute provides a helpful reminder to estate solicitors and planners that when meeting with clients and obtaining instructions, it is important to take detailed notes and address any issues or concerns with respect to mental capacity. These notes can prove to be extremely helpful in any type of estate litigation.
Several members of our firm attended the recent Brown Bag Lunch hosted by the Ontario Bar Association. The case of Amherst Crane Rentals Ltd. v. Perring was addressed.
The deceased passed away in 1998, leaving a will naming his wife as his estate trustee and the sole beneficiary of his estate. She was also designated as the beneficiary of his two RRSPs. In addition, she received the proceeds of several life insurance policies. The deceased was a director of a contractor corporation, and he owed $53,679.28 under the Construction Lien Act. The claim was assigned to Amherst Crane under the Bankruptcy and Insolvency Act which then brought an application on its own behalf against the estate.
The decision is a helpful one dealing with the subject of RRSP proceeds. At the heart of the case is the problem of whether or not RRSP proceeds fall into the estate of the deceased owner, or whether they go directly to the designated beneficiary. A related issue considered by the court is whether or not creditors of the estate can make claims against the RRSP proceeds in the hands of the designated beneficiary.
At trial, it was held that the RRSP proceeds do not form part of the deceased’s estate, and do not fall into the bankrupt estate. Cameron J. also held that, because the proceeds do not fall into the estate of the debtor, they are not available to creditors. He dismissed the application, awarding costs the respondent.
On appeal, the Court reconsidered the issues. A comparison was drawn to the law regarding life insurance. The Insurance Act provides specifically that the proceeds of a life insurance policy do not fall into the estate and are not subject to the claims of creditors. The Court referred to a number of cases illustrating how this issue has been dealt with by other provinces, and considered certain sections of the Succession Law Reform Act (the "SLRA") before drawing the conclusion that RRSP proceeds vest in the designated beneficiary on death and do not form part of the estate.
Regarding the further issue of whether they are still susceptible to creditors, the Court of Appeal concluded that the effect of s. 53 of the SLRA is to except RRSP proceeds in the hands of a designated beneficiary from the claims of creditors of a deceased RRSP owner’s estate.
The Court of Appeal decided in favour of the deceased’s wife, but did reduce the costs award against the creditor.
Leave to appeal to the Supreme Court of Canada was refused.
This case clarified that RRSPs, much like insurance policies, pass directly to the designated beneficiary on death and are not available to creditors. For many would-be testators, this will provide some comfort that their loved ones will be looked after in the event that they are unable to balance their books before they pass away.
Have a wonderful day.
A question often arises amongst estate trustees as to what should be done if an individual dies testate, yet, is predeceased by a beneficiary in the testamentary document. When this type of situation arises, attention must be given to the Succession Law Reform Act (“SLRA”). Section 23 of the SLRA states:
“Except when a contrary intention appears by the will, property or an interest therein that is comprised or intended to be comprised in a devise or bequest that fails or becomes void by reason of,
a) the death of the devisee or donee in the lifetime of the testator; or
b) the devise or bequest being disclaimed or being contrary to law or otherwise incapable of taking effect,
is included in the residuary devise or bequest, if any, contained in the will”.
Therefore, this section provides direction when a lapsed gift arises. If the beneficiary predeceases the testator, or, the bequest is disclaimed by the beneficiary, unless a contrary provision in the testamentary document provides otherwise, the bequest falls into the residue of the deceased’s estate. No distinction is made between gifts of personal or real property.
There are exceptions to this rule, including the application of the cy-pres doctrine, blogged about here, as well as exceptions under the common law, including: gifts passing under a joint tenancy; or property given to a group (class) of persons.
Exceptions can also be found under statute, one of which being s. 31 of the SLRA, often referred to as the anti-lapse provision. Section 31 states:
Except when a contrary intention appears by the will, where a devise or bequest is made to a child, grandchild, brother or sister of the testator who dies before the testator, either before or after the testator makes his or her will, and leaves a spouse or issue surviving the testator, the devise or bequest does not lapse but takes effect as if it had been made directly to the persons among whom and in the shares in which the estate of that person would have been divisible,
a) if that person had died immediately after the death of the testator;
b) if that person had died intestate;
c) if that person had died without debts; and
d) if section 45 [preferential share of spouse] had not been passed.
One of the effects of s. 31 is to ensure that gifts made to certain close relatives, the most common type of legacy or devise, do not fail, but instead pass to the next-of-kin of the predeceased. As the SLRA suggests, three criteria must be met in order for the anti-lapse provision to apply. They include: (i) there is no contrary intention in the will; (ii) the devise or bequest is made to a child, grandchild, brother or sister of the testator; and (iii) the donee was survived by a spouse, or issue, who also survived the testator (both spouse and issue are defined in s. 1(1) of the SLRA).
If the anti-lapse provision does not apply, and the bequest is residuary in nature, an intestacy arises. This is despite the ‘golden rule’ that the courts do not favour an intestacy: see Lord Esher M.R. in Re Harrison (1885), 30 Ch.D 390. However, not everyone views such a rule as golden. In Kilby et al. v. Meyers et. al., Ritchie J. states, “The inclination of courts to lean against a construction which will result in intestacy is far from being a rule of universal application and is not to be followed if the circumstances of the case and the language of the will are such as to clearly indicate the testator’s intention to leave his property or some part of it undisposed of upon the happening of certain events”.