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Beneficiary Designations and Resulting Trusts Revisited

(From the April 2022 Edition of eFORUM)

By Kevin Wark

 

By now most insurance advisors will be familiar with the 2020 Ontario court decision in Calmusky v. Calmusky relating to the application of the presumption of resulting trusts to statutory designations, and the ripple effect it has caused for insurance and estate advisors and their clients. A trio of more recent court decisions across Canada have now considered the merits of the Calmusky decision. As well, there have been ongoing representations to the Ontario government by a number of organizations seeking legislative changes to address this issue. Let’s briefly review the Calmusky decision as well as highlight the more recent court decisions and industry efforts.

Statutory Designations and the Presumption of Resulting Trust

Calmusky v. Calmusky involved a legal action by estate beneficiaries to claim the proceeds of the late father’s Registered Retirement Income Fund (RRIF) under which an adult son had been designated as beneficiary. The applicant’s position was that the “presumption of resulting trust” applied to the RRIF funds, and therefore the named beneficiary of the RRIF, the adult son of the deceased, held those funds in trust for the beneficiaries of the estate. This presumption applies where a gift is made to an adult person (other than a spouse) and places the onus on that person to prove on the “balance of probabilities” that a gift was intended.

In Calmusky, the Court agreed with the applicant’s position that the presumption of resulting trust did apply to beneficiary designations. Since the beneficiary in this case was unable to demonstrate that a gift was intended, the RRIF proceeds fell back into the father’s estate to be distributed in accordance with his will. This was a surprising result for the estate planning community — and one that could negatively impact the estate plans of many people in Ontario and other provinces as well.  

Fortunately, the 2021 Ontario Supreme Court decision in Mak v. Mak put the Calmusky decision into doubt. Based on very similar facts involving an estate challenge to the designation of an adult child as beneficiary of a RRIF, the Court specifically considered the decision in Calmusky and decided that the presumption of resulting trust does not apply to statutory designations. The Court specifically noted “the whole point of a beneficiary designation … is to specifically state what is to happen to an asset upon death.”

However, the reasoning of the Mak decision was not considered or adopted in a subsequent decision by the British Columbia courts. Simard v. Simard  followed earlier B.C. decisions and applied the presumption to three RRIFs owned by the deceased under which one of her adult children was designated as beneficiary. Of some interest, the Court held that the presumption was rebutted for one of the RRIFs that was managed by a financial advisor, as there was sufficient evidence that a gift was intended by the deceased in relation to that RRIF.

Concluding the trilogy of more recent cases, the Supreme Court of Nova Scotia in Fitzgerald v. Fitzgerald considered and agreed with the Court’s reasoning in the Mak decision. The Court concluded that the presumption did not apply to a beneficiary designation governing a Tax-Free Savings Account (TFSA), as a statutory designation is materially different from an inter vivos gift of property.

While there appears to be a growing consensus that the presumption of resulting trust should not apply to statutory designations, without a higher court decision or specific legislative changes, the potential application of this presumption remains an issue of ongoing concern to insurance and estate planners.

Several organizations, including a joint effort by Advocis and CALU, have made submissions and held discussions with Ontario government officials, requesting legislative changes be made to confirm that the presumption of resulting trust does not apply to statutory designations. Unfortunately, the Ontario government appears to be taking the view that this issue needs to be ultimately resolved by the appeal courts. This could be a slow process with differing results across the country unless and until this issue makes its way to the Supreme Court of Canada.

This leaves insurance, financial, and estate advisors with the responsibility of making their clients aware of these legal issues and carefully documenting their intentions to make a gift to adult children when establishing beneficiary designations. This is of particular importance where the designated beneficiary differs from the residual beneficiaries of the estate, as this is where legal challenges will most likely arise. Be sure to also speak with existing clients who have already made beneficiary designations to confirm their intention to make a gift to the beneficiary of their plan. Such activities also open the door for updating and revising estate plans to ensure they continue to meet the needs of your clients and their families. As a final step, clients should be encouraged to share their estate plans with family members to minimize any surprises and help avoid potential litigation between family members.

 

Kevin Wark is managing partner of Integrated Estate Solutions and a tax advisor to CALU. He is the author of several tax/estate planning books entitled “The Essential Canadian Guides” that are available through Amazon.ca and Kindle.

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