What is a LIF?
In Ontario, a LIF is a registered retirement plan that converts locked-in pension funds into retirement income. Through a LIF, the account holder can designate beneficiaries like any other investment account.
Spousal Entitlement Priority
Despite the ability of the account holder to designate beneficiaries, spouses of the account holder have first priority when the account holder dies, absent a valid statutory waiver.
The spousal entitlement priority flows from the Pension Benefits Act (PBA) and its regulations, which perseveres spousal protections when locked-in pension funds are transferred into certain accounts such as a LIF.
Displacing Spousal Entitlement Priority
If the spouse is found to be a spouse as defined in the PBA, the PBA permits a spouse to waive their priority, which must be done with the prescribed waiver mechanism. The waiver must be:
- In the specific form required by the PBA Regulations;
- Properly executed and delivered in accordance with the Regulations; and
- Clear, informed and compliant with the timing and procedural safeguards mandated by the regime.
General beneficiary designations, separation agreements without prescribed-form waivers, or informal acknowledgments are not sufficient.
Absent a compliant waiver, the spouse’s statutory right prevails.
Implications for Designated Beneficiaries
It is particularly important for designated beneficiaries on a LIF to be aware of the potential implications of the presence of a spouse. Regardless of whether the spouse is named as a designated beneficiary or not, a spouse has an automatic entitlement to such funds upon the account holder’s death.
Simply put, a designated beneficiary on a LIF may not be entitled to any funds from a LIF if the deceased account holder had a spouse upon his or her death.[1]
Relevance to Estate Litigation
One of the main concerns of a party involved in an estate litigation matter is their expectation of receiving funds and/or having an interest in the estate, only to find out that they do not. As such, the spousal entitlement priority of a LIF can potentially cause various issues for designated beneficiaries who expected to receive such funds upon the death of the account holder.
In the case of Rehel Estate v. Methot, the deceased incorporated a provision in their Will directing the Estate Trustee to use the proceeds of the deceased’s LIF to pay off any debts owing at his death. The spouse of the deceased argued that they are automatically entitled to such proceeds.
While that is correct in cases whereby the spouse meets the definition as noted in the PBA, the Court found that the account holder and the spouse were living separate and apart at the time of death and as such, the spouse was not automatically entitled to the funds in the LIF account under section 48(1) of the PBA.
This case is helpful in providing guidance when posed with a potential spouse and a contradicting estate plan.
Conclusion
It is reasonable to assume that if you are a designated beneficiary on an investment account, you are automatically entitled to such funds upon the account holder’s death; however, certain accounts, such as a LIF, do not offer the assumed protection to designated beneficiaries.
If you have any questions about your potential entitlement to an estate, we are more than happy to discuss these with you.
[1] Rehel Estate v. Methot, 2017 ONSC 7529 (CanLII)
Julia Bacci
Student-at-Law assisting with litigation research, drafting, and preparation for motions, mediations, and court appearances.