Beneficiary Designations for Registered Investment Accounts

One might assume that if a beneficiary is named to a registered account, like a RIF, the beneficiary will be entitled to the funds by law. However, as two recent conflicting Ontario court decisions illustrate, the situation is not so simple.

The first case, Calmusky v. Calmusky, 2020 ONSC 1506, involved a parent who named one of two children as the designated beneficiary to a RIF account. The child who was not named (unsurprisingly) took issue with the designation and launched a court challenge in which it was alleged that the RIF was not intended to pass to his sibling as beneficiary. Rather, the excluded son argued that his brother (the named beneficiary on the RIF account) really held the funds from the RIF in trust for the benefit of the deceased’s parent’s estate which was to be shared equally under the terms of a last will and testament.

The son who challenged the designation in court referred to cases involving joint bank accounts held between parents and adult children. In such cases, the Supreme Court of Canada has made it clear that when a joint bank account is held between a parent and an adult child, the court will “presume” the account in question to be part of the parent’s estate upon the parent’s death. The onus then moves to the child who is named to the account jointly to prove that the account was in fact intended to be gifted to the child to the exclusion of his/her siblings. If there is no evidence of an intention on the part of the parent to make a gift of the account to the child who is named jointly to the account, then the funds in the account are to be deemed part of the deceased parent’s estate.

The presumption for joint bank accounts makes sense as in many families often one child is named to parent’s bank account in order to help the parent with banking or for some other purpose (such as perhaps an intention to save on probate taxes). Of course, it remains open to the child who is the named beneficiary to show with evidence that the account in question was in fact intended to be an exclusive gift to the child named to the joint account.

In Calmusky, the court ruled that the same presumption which applies to joint bank accounts, discussed above, also applies to a deceased person’s beneficiary designation in a RIF.

In the context of the Calmusky case, the child who was named as beneficiary to the RIF had no evidence to prove that his parent intended him to be the sole recipient of the funds. As a result, the RIF was deemed by the court to be part of the deceased parent’s estate and was therefore shared between the two siblings.

The case was widely critiqued as being incorrectly decided. For instance, unlike with a joint account, someone who is named as a beneficiary to a RIF may not even be aware of having been named until after the account holder’s death. As such, it seems unfair to expect the recipient child to have evidence of what a parent may have intended in naming the child as beneficiary. Also, in my mind at least, there is a difference between naming a child to a bank account jointly and naming a child as a beneficiary to a RIF, RRSP or TFSA. In the first instance, there are many reasons why a parent might name a child jointly to a bank account—as suggested earlier, this is sometimes done to simply allow the child to assist the parent with banking. Whereas when a child is named as a beneficiary to a registered account however there should be, at least in my mind, less ambiguity as to why the child was named.

The case of Calmusky was revisited in a recent decision involving similar facts, being the case Mak Estate v. Mak, 2021 ONSC 4415. In Mak, a parent named one of four children as a named beneficiary to a RIF account. The designation was challenged in court by the other three children who argued in reliance upon the Calmusky decision that the account ought to be part of the parent’s estate and shared equally with all four children as per the parent’s last will.

The court in Mak declined to follow the Calmusky case, the net result being that the child who was named as a beneficiary to the RIF was presumptively entitled to retain the funds and it was up to the other children to prove why the beneficiary designation should not apply.

In reaching its conclusion in the Mak case the court opined that the beneficiary designation in a RIF account is more like a will, in that the funds in the account only pass to the named beneficiary upon the parent’s death. The court considered that the whole purpose of a beneficiary designation is to indicate who is to receive the funds upon the account holder’s death, unlike in a case where a child is named jointly to a bank account with a parent while the parent is still alive. In the latter scenario, the child may be named to help the parent with banking for instance.

What is the takeaway from these two cases? First, these legal issues will likely be addressed by the Court of Appeal or even the Supreme Court of Canada in future cases as we have two different decisions of the same Ontario court which are at odds with each other—one must be wrong and it will take an appellate level court to give us better direction.

Until then, I think the main thing to keep in mind is the importance of establishing in writing (or even perhaps by video) the parent’s intention when a child is named to a joint account or as a beneficiary to a registered investment (RIF, RRSP, TFSA, etc.). Also, in my personal experience, I find it is often best for parents to discuss these estate planning issues with their adult children while everyone is still alive. Most children expect to be treated the same as their siblings in a will and if the parents plan to benefit one child more so than others, sometimes I think it’s best for the parents to make this known to their children as in my view, many estate litigation cases arise as a result of unmet expectations!

Thanks for reading.

Jason

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