Beneficiary Designations for Registered Accounts: Do You Really Want The Courts To Get Involved?

In Ontario, individuals may designate beneficiaries for their registered accounts—such as TFSAs, RRSPs, RRIFs, and FHSAs (see Part III of the Succession Law Reform Act, RSO 1990, c S.26 (SLRA)). This designation ensures that, upon the account holder’s death, the proceeds are paid directly to the named beneficiary, thereby bypassing the estate. This not only avoids estate administration tax on those funds, but also often allows for a quicker distribution to the designated beneficiaries as well as regarding RRSPs and RIFFs creditor protection. Additionally, if a spouse is named as the beneficiary of an RRSP or RRIF, the account can typically be rolled over to a spouse’s account on a tax-deferred basis, meaning income tax is deferred until at the latest spouse’s death.

It all seems fairly straightforward—name a beneficiary, save on tax, and expedite the distribution. But, as with many things in estate planning, the details matter. A few recent cases highlight precisely that:

1. Testator refers to the wrong account – In Hayduk v. Gudz, 2022 ONSC 2249, the testator directed, in her Will, that a specific RRIF account (held with BMO Nesbitt Burns) be held in trust for her great-granddaughter. However, the account referenced did not exist.While the testator did have a RRIF with the Bank of Montreal, it was not a Nesbitt Burns account and had a different number than what was listed in the Will. The estate trustee was forced to apply to the court to determine the validity of the disposition. The court ultimately rectified the Will to reference the correct account.
2. Testator does not designate a beneficiary for his RRIF – In Boulos v. Duca Financial Services Credit Union, 2020 ONSC 1946, the testator designated a beneficiary for his RRSP but failed to do a new designation when the account was converted to a RRIF. The court ultimately found that the RRSP designation was meant to designate the beneficiary of the fundsconstituting the RRSPs, and the designation would follow or trace the conversion of those funds into a RRIF, absent the revocation of the designation.However, there was a case in British Columbia (Bramley v. Bramley Estate, 2003 Carswell BC 445, 3 E.T.R.) where a different conclusion was reached. The testator named one of his sons as beneficiary of his RRSP and did not name that son in his will. The testator later opened a RRIF and deposited the funds of the RRSP into it. He did not, however, name a beneficiary of the RRIF.The court held that the RRSP had ceased to exist and that the RRIF designation was a separate document. As no beneficiary was named, the proceeds of the RRIF were payable to the estate.
3. Bank does not have a record of the beneficiary designation – In Ray-Ellis v. Goodtrack et al., 2021 ONSC 3102, the deceased signed a beneficiary designation in 2001 changing the beneficiary of his LIRA from his ex-wife to his parents.CIBC was unable to locate the 2001 designation in its records and advised the deceased three times that his ex-wife was still shown as the beneficiary and sent him blank beneficiary change forms for him to execute. A photocopy of the 2001 designation was eventually found among the deceased’s documents. The ex-wife argued in court that the 1997 designation had not been revoked.The court did not agree. The court observed that section 51 of the SLRA does not require that the beneficiary designation be “registered” or even sent to the banking institution.

The Lesson: Courts Can Fix It, But These Problems Could Have Been Avoided Altogether

While in these cases the Ontario courts were ultimately able to give effect to the testator’s intentions, the resulting delay and additional costs, defeating the purpose of a beneficiary designation, could have been avoided altogether.

So, refer to the correct account, make sure to update the beneficiary designation for an RRSP that has been converted to a RRIF and ensure the bank has a copy (and gives you one) of your beneficiary designation. Don’t leave it to the courts to determine your intentions.

— Namratha Sankar