Estates Law News: Beneficiary Designations Now Subject to Pecore?
By Karen Watters, Gowling WLG (Canada) LLP
It is understandable if the decision in Calmusky v. Calmusky1 slipped by you unnoticed amidst the impacts of the COVID-19 shutdown. The decision in Calmusky was released March 16, 2020 and has raised some challenges for estate planners and financial institutions. It will also likely be relied upon by family members who believe that mom or dad did not intend to benefit one of their children more than the others on death.
In Calmusky, the Court applied the presumption of resulting trust as set out by the Supreme Court of Canada in Pecore v. Pecore2 and Saylor v. Madsen Estate3. This is hardly ground-breaking except for the fact that the presumption was applied to a beneficiary designation on a Registered Income Fund (RIF), in addition to typical joint bank accounts.
As a refresh, the Pecore and Madsen Estate decisions hold that the presumption of resulting trust applies where there is a gratuitous transfer of assets from a parent to a non-dependent adult child. In those cases, the law presumes that the adult child holds the assets in trust for the parent unless the adult child can establish that the assets were intended to be a gift at the time of the transfer.
Many of the facts in Calmusky will be familiar to estates practitioners. Henry Calmusky (“Dad”) died at the age of 94. He was predeceased by his wife, Mary Calmusky (“Mom”), and one of his sons. Dad was survived by his other two sons, Gary Calmusky (“Gary”) and Randy Calmusky (“Randy”). Two days after the death of Mom, Dad changed his last will and testament and shortly thereafter, he added Gary as joint account holder on two of his bank accounts and sole beneficiary of his RIF. Gary and Randy were appointed Executors of Dad’s Estate. However, the residuary beneficiaries were not Gary and Randy; rather, a nephew and a grandson (a son of Randy). Gary and Randy were not receiving any gifts under the Will. Or so it seemed on its face.
Gary argued that the nephew and grandson were “placeholders” for him and Randy respectively and were holding a share of the residue for each of them in trust. Gary led evidence that he and Mom each lost a considerable sum of money after investing in Randy’s failed business. Gary asserted that Dad named two placeholder beneficiaries to protect the gifts to Gary and Randy from creditors of Randy’s business. In addition, Gary asserted that his parents had historically treated Gary and Randy equally when it came to financial gifts and loans. Gary argued that, by gifting Gary the balance in the joint accounts and RIF, Dad was “equalizing” the money which had been given to Randy through investing in his business.
Randy disagreed that the named residuary beneficiaries were placeholders and asserted that the nephew and grandson were intended by Dad to be the beneficiaries of the Estate. Randy argued that Gary was holding the monies in the joint accounts and the RIF in trust. Randy acknowledged the failed business and loss of money by Mom and Gary. Randy also acknowledged a conversation between him and Dad during which Randy suggested that someone else be a beneficiary of Dad’s Will because of Randy’s creditors. However, Randy denied that he suggested a placeholder beneficiary or that he had ever agreed to that arrangement.
After considering the evidence on the joint accounts, the Court held that Gary did not rebut the presumption of resulting trust. The Court noted that some of the same evidence Gary led in support of beneficial ownership of the joint accounts was similar to the evidence proffered in support of beneficial ownership of the RIF, for example the bank’s documentation of the beneficiary designation.
The Court considered McConomy-Wood v. McConomy,4 a decision of the Ontario Superior Court two years after Pecore which dealt with the funds in a RIF. In McConomy the Court easily found, based on the evidence, that the deceased intended for her daughter to hold the RIF monies in trust for her Estate. The Court made the finding without the need to consider the presumption of resulting trust. In obiter dicta, the Court commented that if it had been necessary to consider whether the presumption of resulting trust or the presumption of advancement applied, it would have followed Pecore and decided against the presumption of advancement.
The Court also considered a decision of the Manitoba Court of Appeal5 which was decided several years before Pecore and Madsen Estate. In Dreger the assets in issue were an RRSP annuity and life insurance policies. As was common in the pre-Pecore cases, the Court in Dreger considered whether it was the presumption of advancement or resulting trust that applied. It held that the former applied; however, based on the evidence the presumption was rebutted and the funds were being held in trust for the estate.
Randy argued that the Manitoba Court of Appeal was correct in considering which presumption was applicable in cases of gratuitous transfer but that, post-Pecore, the correct presumption is one of a resulting trust.
The Court ultimately agreed with Randy and found that the RIF funds were held by Gary in trust for Dad’s Estate. Gary was ordered to pay the proceeds of the RIF to the Estate. In setting out its reasons, the Court stated that, even though Pecore dealt with joint accounts, the principles in Pecore “apply more generally to other gratuitous transfers of property interests”.6 The hearing judge stated:
I see no principled basis for applying the presumption of resulting trust to the gratuitous transfer of bank accounts into joint names but not applying the same presumption to the RIF beneficiary designation. In both cases, the transfer of interest is gratuitous, as would be necessary for the presumption of resulting trust to apply. Gary was not the source of funds for either type of account. In both cases, the same evidentiary challenge arises – the difficulty in determining the deceased transferor’s intention at the time he transferred legal (as opposed to beneficial) entitlement to the funds, whether the transfer is effective immediately (the joint accounts) or on the transferor’s death (the RIF): see Pecore, at para. 5. In these circumstances, it makes sense from a policy perspective that the evidentiary burden be on the transferee or designated RIF beneficiary, since the transferee/RIF beneficiary “is better placed to bring evidence of the circumstances of the transfer”: Pecore, at para. 26. On that basis, I agree with the trial judge’s obiter comments in McConomy that the principles in Pecore should apply to the RIF designation as well.7
The Court’s comments in Calmusky regarding the evidentiary burden on the transferee makes sense in the context of joint accounts. With joint accounts the transferee will often, if not always, be required to attend the bank with the transferor and sign the requisite bank documents adding his or her name to the account. The jointing of such assets requires the transferee’s knowledge and consent and, therefore, the transferee ought to have contemporaneous evidence of the circumstances of the transfer.
In contrast, a beneficiary designation may be done unilaterally by the transferor. The transferee takes no part in the designation and may not have any knowledge of it until after the death of the transferor. Equally possible is that the transferee may learn of the designation long after it has been made. In either case, the transferee will have no contemporaneous evidence of the circumstances of the transfer in order to rebut the presumption of resulting trust.
For financial institutions, the issues are whether they should delay the release of funds to a designated beneficiary until the green light is received from the Estate’s representative. Or, will the form signed by the transferor be enough to satisfy any onus on the financial institution to pay the funds to the proper recipient? What about the designated beneficiary of the plan who receives the funds: should he or she postpone spending the funds in case there is a challenge as to who is the beneficial owner? If so, how long should the beneficiary wait? Any postponing could cause financial difficulties for beneficiaries who are liable for the tax burden but cannot use the proceeds to pay the tax.
Estate planners will know that beneficiary designations are a common estate planning tool which is recognized in statute in Ontario. The Succession Law Reform Act provides that designations under certain plans, including a retirement savings plan and a retirement income fund, can be made either through the plan administrator or through a designation in a Will.8 The relevant provisions of the SLRA also establish that the later designation revokes the earlier designation.9
Clients may well prefer to designate a beneficiary of a RIF or RRSP through the plan administrator because: (i) the gift will not be known to the beneficiaries in the Will; (ii) it provides them with the flexibility to change the beneficiary designation in the future without executing a new Will; and (iii) does not require them to execute a new Will if the plan administrator changes in the future. With respect to the last comment, a designation in a Will applies only to the registered plan(s) that exist at the time the Will is executed. If a client should change financial institutions and transfer his or her RIF after the Will is executed, the designation in the Will is not applicable.
In light of Calmusky, estate planners may be wise to recommend to their clients that designations be made through their Will and not the plan administrator. A designation through the Will is evidence of the gift. The tax treatment of the registered fund can also be addressed in the Will. Clients would need to know the risk of any subsequent designation through the plan administrator. If clients prefer to make the designation through the plan administrator then they ought to be advised that the standard form documentation will likely not be enough for the designated beneficiary to rebut the presumption of resulting trust. It remains to be seen what will satisfy the evidentiary burden that the transferor intended a gift but clients ought to have something more, a note or letter perhaps, which explicitly states their intention to make a gift to the beneficiary.
Karen is an associate with Gowling WLG (Canada) LLP. She has a combined practice of estate litigation and estate planning and has focused her expertise on matters relating to estates, wills and trusts. She can be reached at Karen.Watters@gowlingwlg.com or 905-540-2503.
1 Calmusky v. Calmusky, 2020 CarswellOnt 6539, 2020 ONSC 1506 [Calmusky].
2 Pecore v. Pecore, 2007 SCC 17, 2007 CarswellOnt 2752 [Pecore].
3 Saylor v. Madsen Estate, 2007 SCC 18, 2007 CarswellOnt 2754 [Madsen Estate].
4 McConomy-Wood v. McConomy, 46 E.T.R. (3d) 259 (S.C.), 2009 CanLII 7174 (ON SC) [McConomy].
5 Dreger (Litigation guardian of) v. Dreger, 1994 CanLII 16643 (MB CA),  10 W.W.R. 293 (C.A.) [Dreger].
6 Calmusky, supra note 1, at para 56.
8 Succession Law Reform Act, R.S.O. 1990, c. S.26, at s. 51 [SLRA].
9 Ibid, at s. 52.