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.
Thank you for reading.
Does an attorney, or guardian, have the power to change a grantor’s estate plan?
According to section 31(1) of the Substitute Decisions Act, a guardian of property (or attorney for property) has the power to do on the incapable person’s behalf anything in respect of property that the person could do if capable, except make a will.
The statute, however, is deceptively simple. Can a guardian transfer property into joint tenancy? Can a guardian sever a joint tenancy? Can a guardian change a beneficiary designation on a RRSP, RRIF or insurance policy? Can an inter vivos trust be established or an estate freeze undertaken to save taxes? There are numerous cases which have tested these issues.
For instance, in Banton v Banton, Justice Cullity found that although the grantor’s attorneys had the authority to create an irrevocable inter vivos trust, they nonetheless breached their fiduciary obligations owing to the grantor, in creating the trust.
The irrevocable trust provided for income and capital at the trustee’s discretion for the grantor’s benefit during his lifetime and a gift over of capital to the grantor’s children, who were also the attorneys. The scheme of distribution of the irrevocable trust was the same as provided for in the grantor’s will. However, the court found that the fact that the remainder interest passed automatically to the grantor’s issue defeated the grantor’s power to revoke his will by marriage and would deprive his common law spouse of potential rights under Parts II and V of the Succession Law Reform Act and Part I of the Family Law Act. The court found that the gift of the remainder of the interest went beyond what was required to protect the grantor’s assets.
Justice Cullity stated:
“I do not share the view that there is an inviolable rule that it is improper for attorneys under a continuing power of attorney to take title to the donor‘s assets either by themselves or jointly with the donor . This must depend upon whether it is reasonable in the circumstances to do so to protect or advance the interest, or otherwise benefit, the donor.”
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In today’s podcast, Noah Weisberg and Sayuri Kagami discuss the Alberta decision of Re Morrison Estate, 2015 ABQB 769, and the issue of who is responsible for the often hefty taxes payable on registered accounts of a deceased person: the beneficiary of the account or the deceased’s Estate.
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
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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