Is Your Beneficiary Designation Safe?

Beneficiary Designation

On March 16, 2020 the Hon. Justice R.A. Lococo of the Ontario Superior Court released his reasons for decision in Calmusky. His Honour as part of his reasons applied the principles surrounding the presumption of resulting trust established by the Supreme Court of Canada case Pecore v. Pecore [2007] 1 S.C.R. 795 to two separate issues one of which is cause for concerns amongst estate planners, financial advisors and estate solicitors across the province.

His Honour in Calmusky applied the presumption of resulting trust to a joint bank account held with the deceased. The presumption of resulting trust essentially, in short, occurs where there is a transfer of assets to parent to adult child for no consideration. A rebuttable presumption arises in these circumstances that the adult child is holding the asset transferred by the parent in trust for the parent’s estate. The Court applied Pecorein Calmuskyand found that the joint bank account held by the Deceased and Gary Calmusky did not pass to Gary by way of survivorship but rather resulted back to the estate and thereby constituted an asset of the estate to be distributed in accordance with the Deceased’s will.

More controversially, His Honour applied Pecoreto RIF funds on which the Deceased designated Gary as the sole beneficiary. Historically, the Court in most cases differentiated between the application of Pecoreto joint accounts vs. accounts on which there was a beneficiary designation signed by the deceased (“Designation Accounts”) as such Designation Accounts operate where upon the owner’s death, the assets can be designated separately and apart from the owner’s estate for tax purposes and/or estate planning purposes. The authority and ability for someone to designate a beneficiary on specific “plans” which includes a RIF is found in Part III of the Succession Law Reform Act and in particular sections 51(1) and 54.1(1). Section 53 of the SLRA actually requires that the person administering the plan unless they are on notice of a subsequent designation or revocation made by the deceased.

In so finding, His Honour reasoned, in part, as follows;

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. In both cases, the transfer of interest is gratuitous, as would be necessary for the presumption of resulting trust to apply. Gary was not the source of funds for either type of account. In both cases, the same evidentiary challenge arises – the difficulty in determining the deceased transferor’s intention at the time he transferred legal (as opposed to beneficial) entitlement to the funds, whether the transfer is effective immediately (the joint accounts) or on the transferor’s death (the RIF)…In these circumstances, it makes sense from a policy perspective that the evidentiary burden be on the transferee or designated RIF beneficiary, since the transferee/RIF beneficiary “is better placed to bring evidence of the circumstances of the transfer”… On that basis, I agree…that the principles in Pecore should apply to the RIF designation as well.

The Court in so finding also did not consider the application of Part III of the SLRA.

The issues and/or difficulties arising from the decision in Calmuskyare too robust to list and evaluate in so many words but it is safe to say that in light of the decision in Calmusky, individuals prior to considering a change to a beneficiary designation on an investment account (such as a RIF) may now be required to consult with a lawyer. If the Court is going to require and place the evidentiary burden on the designated beneficiary to demonstrate the intentions of the transferor, than the intended designated beneficiary may need to be involved in the change of designation – which I note may give rise to a whole separate myriad of legal issues surrounding the possibility of undue influence.

Sometimes, people are not even aware they were the designated beneficiary of an investment account until after the death of the transferor whereas with joint accounts, the joint account holder jointly owns and has joint access to the accounts while the transferor is alive. From a practical perspective I am not sure how the Court can impose the burden of proof on the designated beneficiary(ies) in such circumstances.

Also, Calmuskymay have more broad applications to the change of beneficiary designations on life insurance policies and other investment accounts such as TFSA’s, RRSP’s and the like.

Hopefully, further caselaw and decisions emerge to clarify the application of Calmuskybut in the meantime, estate planners and financial advisors should discuss a client’s designations (either as is or if they are to be changed by the transferor) and take detailed notes about their intentions as this evidence could be critical should the principles in Calmuskyapply going forward.

Jonathan M. Friedman is the owner of Friedman Estate Litigation P.C. and practices in the areas of Estate Litigation and Real-Estate Litigation.

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