Court decision casts doubt over beneficiary designations

An Ontario Superior Court of Justice decision in a disagreement between twins over their father’s estate has raised uncertainty over how courts will interpret beneficiary designations on registered plans, estate practitioners say.

The judge in Calmusky v Calmusky found that the sole named beneficiary of a RRIF was not the plan’s ultimate beneficial owner. Instead, the judge found that the beneficiary was holding the RRIF in trust for the deceased’s estate.

The decision, released in March, has caught the attention of estate practitioners. The judge appears to have focused on determining the deceased’s testamentary intentions in naming the RRIF beneficiary, while not considering provincial estate legislation that permits a designated beneficiary to be named on a plan.

“[The legislation] doesn’t say anything about leaving tons of evidence in terms of intention [in regard to beneficiary designations],” says Keith Masterman, vice president of tax, retirement and estate planning with CI Investments Inc. in Toronto.

The Calmusky case involves Henry Calmusky, who died in 2016 at age 94. He had named his son Gary Calmusky as joint owner of three bank accounts, which had an approximate combined value of $285,000 at his death. He also named Gary as beneficiary of his RRIF, which was valued at about $41,000 on death.

Randy Calmusky, Gary’s twin, applied to court arguing that Gary held the bank accounts and the RRIF in trust for Henry’s estate. Gary, however, argued that he was entitled to the proceeds of the joint accounts by right of survivorship, and to the RRIF as the designated beneficiary of the plan.

The court found that the proceeds of the bank accounts belonged to the estate, applying the principle established under the Supreme Court of Canada decision in Pecore v Pecore — that a transfer of property for no consideration to an adult child is presumed to be a trust.

In other words, when an adult child is named joint owner of a property, such as a bank account, to which they have not contributed, it is presumed that the adult child is holding the property on trust for the parent’s estate.

The adult child can attempt to prove that the transfer of property was intended to be a gift. While Gary submitted evidence, such as bank documents, to support his claim that his father had intended that Gary be the beneficial owner of the bank accounts, the court was not convinced.

The court’s finding on the joint accounts in Calmusky was not surprising, estate practitioners say, as it aligned with precedent set in Pecore.

It was unexpected, however, that the court extended the so-called Pecore principle to the beneficiary designation on the RRIF, the practitioners say.

As Gary was also unsuccessful in proving that his father had intended to gift him beneficial ownership of the RRIF, the court found that Gary held the RRIF in trust for the estate as well.

Estate practitioners say the Calmusky decision casts doubt on how courts might interpret a beneficiary designation on a registered plan or insurance policy in the future.

“Based on what the judge has said [in the decision], there are some concerns that there could be serious implications for estate plans that are already in place,” says Suzana Popovic-Montag, managing partner with Hull & Hull LLP, a trusts and estate law firm in Toronto.

Another implication of the decision is its potential effect on probate planning, Masterman suggests. One of the primary reasons a client might name a beneficiary on a registered plan is to ensure proceeds of the plan don’t fall into an estate. However, “if the RRIF is [found to be] held on behalf of the estate, [then] the estate is the beneficiary, and probate fees should be paid on the RRIF,” Masterman says.

Estate practitioners caution that the Calmusky decision could be an outlier and suggest that much depends on whether the decision is appealed, or if the precedent established will be tested by a higher court.

“I think we need a little bit of time to see what actually comes out of this [decision],” Popovic-Montag says.

Says Carol Bezaire, vice president of tax, estate and strategic philanthropy with Mackenzie Investments in Toronto: “I would say there’s more to come on this [decision]. There has to be.”

However, Masterman says that while “there’s a certain amount of ambiguity in [Calmusky] because it is only one decision in Ontario,” he believes it may be part of a broader trend. He says recent court decisions in Alberta and Manitoba also applied the Pecore principle to beneficiary designations. “You’re seeing the courts heading in a certain direction,” Masterman says.

Estate practitioners say 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.

“Leave a document to communicate that this is what is what you want, so everybody knows what you’re doing,” says Bezaire, who suggests a copy of such a document might be given to each interested party.

Financial advisors can play a critical role by discussing estate plans with clients and documenting clients’ wishes in their notes, says Popovic-Montag: “It would be some independent third-party evidence — collaborative evidence — of intention.”