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Beneficiary Designations Uncertainty: Where Are We Now?

It is a well-established principle from the Supreme Court of Canada’s 2007 decision, Pecore v Pecore, that there is a presumption of a resulting trust where a gratuitous transfer of property is found. The primary example is when an asset is put into joint names by a parent with an adult child for no consideration. In this case, there is the presumption that the property is not a gift to the child but rather that the child is holding the property in trust for the estate of the parent. This presumption can be rebutted.

Although we have come a long way since Pecore, the cases relating to joint ownership appear to take two steps forward and one step back.

The most recent issue that has come into the spotlight in Ontario is with respect to beneficiary designations for registered plans. There have been two recent decisions out of the Ontario Superior Court of Justice with differing applications of Pecore in the context of beneficiary designations.

The 2020 decision in Calmusky v. Calmusky added a new dimension to the presumption of a resulting trust. The Court found that the presumption of a resulting trust applied to a registered account designated to an adult beneficiary. However, in the 2021 decision in Mak (Estate) v. Mak, the Court declined to follow Calmusky and came to the opposite conclusion and held that a resulting trust cannot apply to a beneficiary designation of a registered plan. The Court called into question whether the doctrine of resulting trusts should even apply to beneficiary designations.

Before Calmusky, there was never a need to determine the intent behind a beneficiary designation. It was not considered in the same way as an asset that was put into joint names by a parent with an adult child. This was clear from the legislation. The Succession Law Reform Act states that an individual may designate a beneficiary of a registered plan and the institution administering the plan must pay it out in accordance with the beneficiary designation on the plan owner’s death.

A recent Nova Scotia case, Fitzgerald Estate v Fitzgerald, reviewed Calmusky and Mak to determine whether a beneficiary designation of a TFSA was subject to the presumption of resulting trust. The Court’s decision was in line with Mak Estate and it declined to follow Calmusky. Unfortunately, the decision is not binding on the Ontario courts.

So, where are we today? These conflicting decisions have left uncertainty for estate lawyers and financial advisors with respect to beneficiary designations. Estate planning professionals are waiting patiently for a higher court to give more clarity or for legislative amendments to protect the validity of beneficiary designations.

These cases should serve as a reminder of the importance of documenting intentions of any gratuitous transfers, which rightly or wrongly may capture beneficiary designations of registered plans. Lawyers and financial advisors alike should document a plan owner’s intentions with respect to beneficiary designations. This is especially important where the intended beneficiaries of a registered plan are different than the beneficiaries of the plan owner’s estate or where there is concern for a future dispute.

– Marly Peikes

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.