We work hard all of our lives. This hard work allows us to afford a home, maybe splurge on a few vacations, save a few dollars and when we pass, transfer our wealth to those we love, whether they be immediate family or a specified individual(s). Normally, this transfer can be done quite simply with a will or a beneficiary designation in the case of a registered plan and/or life insurance policy.  

However, designating a beneficiary for a life insurance policy just became more complicated with a recent Ontario Superior Court case, Calmusky v Calmusky. In this case, the deceased father had a joint account with one son, Gary, who was also named as the beneficiary under the deceased’s Registered Retirement Income Fund (RRIF). The other adult son, Randy, was not too happy that these assets went directly to Gary and took the case to court, stating that the bank account and the RRIF were held in trust for the estate of the father.  

The court decided that, based on case law, a joint bank-account should be held in trust for the estate when it results from a gratuitous transfer of an asset to an adult child, unless the child can prove that it was the deceased’s intention to gift the asset to them directly. So far so good: bank account = trust, unless there is solid proof stating otherwise.

However, this is where things get a little murky. The court then went on to apply this very same principle to the RRIF beneficiary designation, regardless of legislation already in place honouring such designations! Although the deceased had signed a beneficiary designation form naming Gary as the direct recipient of the proceeds, the RRIF was nevertheless deemed as part of the estate. Very murky indeed: RRIF = beneficiary designation form would previously have been honoured but instead RRIF funds were added to estate.

In doing so, the Court created doubt as to whether routine designations, whether they be in registered plans or insurance, will now be subject to increased legal scrutiny and litigation. Will this now apply to insurance policies as well as registered plans and bank assets? Will an adult beneficiary (other than a spouse) now have to scramble to find additional proof? If the supporting evidence is not enough, will they be trapped in endless litigation? How much will the litigation process cost compared to the insurance proceeds?

Today, there’s concern that beneficiary designations in favour of adult children in life insurance policies can now be challenged. This particular case is not being appealed and represents the current law in Ontario. Moreover, this “resulting trust” principle is also being applied in other provinces across Canada (excluding Quebec, which is a civil-law province). So how can you protect your assets and ensure that they go directly to your designated beneficiary? When working with your Advisor on estate plans, make your intentions crystal clear and have ample documentation to support these intentions. Communication and meticulous planning are key!