Beneficiary designations affirmed in Ontario court decision

An Ontario Superior Court decision has reaffirmed the primacy of beneficiary designations for registered plans.

In Mak (Estate) v Mak, the plaintiffs unsuccessfully sought to overturn the beneficiary designation of a RRIF.

“The whole point of a beneficiary designation … is to specifically state what is to happen to an asset upon death,” wrote Justice M. McKelvey in the judgment, which was dated June 18 and released Tuesday.

McKelvey added that the principle established under the Supreme Court of Canada decision Pecore v Pecore — that a transfer of property for no consideration to an adult child is presumed to be a trust — did not apply to the RRIF’s beneficiary designation in this case.

The Mak decision is contrary to the decision in Calmusky v Calmusky: that the sole named beneficiary of a RRIF was not the plan’s ultimate beneficial owner, but rather that the beneficiary was holding the RRIF in trust for the deceased’s estate.

The Mak decision “is exciting news, because it re-establishes the status quo of what estate planners have thought — that beneficiary designations should be recognized,” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth Management. “Whatever the planholder says on the designation goes; there’s no presumption of a resulting trust.”

Golombek said he was not surprised by how the judge ruled in Mak, saying that Calmusky was “heavily criticized” in the financial and estate planning community. “People thought [Calmusky] was really contrary to the way the law should work, at least in Ontario.”

McKelvey himself was explicitly critical of the Calmusky decision, writing that “there is good reason to doubt the conclusion that the doctrine of resulting trust applies to a beneficiary designation.”

The Mak case involves four brothers and their parents’ estates. The matriarch of the family, Tai-Kiu, died in 2015 following a diagnosis of dementia in 2012.

One brother, Kenny, was named sole beneficiary of his mother’s RRIF in 2007, but this was kept secret from his siblings. Those siblings argued that the beneficiary designation was invalid for two reasons: that it was made while Tai-Kiu was under undue influence, and that the RRIF was presumed to be a trust under the Pecore principle (as in Calmusky).

The judge found no evidence for undue influence, writing that the designation occurred “well prior” to the onset of Tai-Kiu’s dementia.

Nor did the judge find that the RRIF resulted in a trust.

“I have … concluded that the Pecore presumption of a resulting trust does not apply to a beneficiary designation for the mother’s RRIF,” McKelvey wrote. Since Kenny’s siblings failed to show that Tai-Kiu intended to benefit her estate with the RRIF, “I have concluded that the plaintiffs have failed to establish an entitlement to the proceeds of the [RRIF].”

The judge found, however, that Kenny held other assets in trust for his mother and subsequently her estate, such as securities and the proceeds from the sale of real estate. In other words, the Pecore principle applied to these assets.

Nick Esterbauer, an associate with Hull & Hull LLP in Toronto, wrote in a blog post that clients should take care when designating beneficiaries.

“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,” he wrote. “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.”

Estate practitioners have noted that it is always advisable for clients to document their intentions in terms of beneficiary designations and joint accounts, either in their wills or through a memo or note. This is particularly true in cases where estate plans might be contested, such as when one sibling is named as a beneficiary of a property, but other siblings are not.

With files from Rudy Mezzetta

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.