Registered accounts and life insurance are integral parts of your clients’ retirement and estate plans. Both allow a client to assign beneficiaries within the account or policy, or separately through her will, for instance. Beneficiary designations minimize probate tax since the proceeds fall outside the estate.

In certain circumstances, the courts have ordered proceeds to be paid to someone other than the designated beneficiary. This typically happens in cases involving marital breakdown, where a beneficiary designation is changed contrary to a separation agreement. But, the courts have been willing to intervene in other situations.

Read: Which RRIF strategy is best for clients?

The most recent is Morrison v. Morrison (Re Morrison Estate), decided in December 2015 in Alberta. The issue was whether a deceased’s RRIF was an asset of his estate to be divided between the beneficiaries named in his will, or if the RRIF’s proceeds should flow to the beneficiary named on the RRIF’s designation form.

Here are the details. John Morrison died in November of 2011. His will, dated March 2002, divides his estate equally among his four children. In July of 2002, he signed a designation form naming his son Douglas as the beneficiary of a RRIF valued at $72,683. At the time of his death, his estate (not including the RRIF) was valued at $77,000.

John’s other children were upset by the apparent inequity. His estate was responsible for paying the tax liability triggered by the deemed disposition of the RRSP on his death, so while Douglas would receive the funds, his siblings would be funding three-quarters of the tax. (As an equal beneficiary of the estate, Douglas was slated to receive one quarter of the $77,000, and would therefore be responsible for one quarter of the tax on the RRSP.)

The court held that beneficiary designations on life insurance policies and registered accounts are subject to a presumption of a resulting trust where there is a “gratuitous” and “unexplained beneficiary designation.” It’s then up to the beneficiary to rebut this presumption.

The court held that Douglas made his case as RRIF beneficiary successfully. Among other things, he pointed to his close relationship with his father and the assistance he had given his father when his mother (John’s wife) died in 2002. But, the court said, it would be unfair for the estate to bear the RRIF’s tax burden, and it ordered Douglas’s receipt of the RRIF proceeds be conditional on his payment of the RRIF’s full tax liability.

Let’s examine three other beneficiary cases to see what else courts have done in the past.

Newport v. Mountainside Medical Pharmacy Ltd. (Ontario)

In this case, the court retroactively changed both the owner and the beneficiary of an insurance policy. The owner of a business designated the business as the beneficiary of a company-owned policy. The business owner was the life insured.

The owner became ill and decided to sell the business, but never changed the policy’s owner or beneficiary. The sale was completed two months prior to his death. The new owners claimed the proceeds of the life insurance policy as an asset of the business. Evidence suggested the seller did not consider the policy to be an asset of the business. The purchasers argued that, regardless of intention, under the provisions of the Insurance Act and in the absence of a declaration, the purchasers were entitled to the life insurance proceeds.

The court disagreed and changed the beneficiary designation to the deceased’s wife and ordered the policy be transferred from the business to the deceased.

Neufeld v. Neufeld (British Columbia)

Charlotte Neufeld was sophisticated in financial matters, and when she discovered she was terminally ill, she began to research ways to minimize probate taxes.

In the weeks leading up to her death, she added her brother Siegfried as joint owner of her bank account and GIC, and named him as beneficiary of her RRIF (Charlotte was the sole contributor to the accounts). She also created a will naming her brother Siegfried as executor and both her brothers, Harry and Siegfried, as residual beneficiaries.

After Charlotte’s death, Harry brought an action claiming that the bank account, GIC and RRIF were held in a resulting trust for Charlotte’s estate and should be equally distributed to both him and Siegfried. Siegfried agreed that the bank account and GICs were a resulting trust, as there is a presumption of resulting trust in similar situations.

However, he contended the presumption should not apply to the RRIF because beneficiary designations in registered accounts are governed by legislation, and altering the designation would, in effect, amend that legislation.

The court held that the presumption of resulting trust applied and that Siegfried was unable to rebut it. The court pointed to Charlotte’s research into probate tax savings, and the fact that her estate plan would appear to be defeated should the RRIF pass outside the estate.

So, the RRIF was treated as part of the estate. As such, the RRIF had to be equally distributed among beneficiaries—in this case, the two brothers.

Mitchell v. Clarica Life Insurance Co. (Ontario)

In this case, the deceased changed the beneficiary designation on his insurance policy from his estranged second wife to his three children. One adult child was from an earlier marriage and the other two were minors from the second marriage.

Evidence showed that the second wife had paid all premiums and the policy had been purchased to provide for her children in the event of the deceased’s death. The court found the policy was held by the deceased in a resulting trust for his second wife and he could not change the beneficiary designation. As a result, the second wife was entitled to the proceeds.

Were those cases fair?

It’s debatable whether the court should be able to amend a designation, since the person who made the designation is no longer there to provide evidence as to intention, and because the legislation governing designations is straightforward.

In the above cases, however, it does appear the courts came to fair and equitable results. In other cases, the fairness of the court’s decision isn’t as obvious.

Orpin v. Littlechild (Ontario)

The court considered a standard clause in a will and determined it revoked an insurance designation entered almost contemporaneously to the signing of the will. In March 2009, Mr. Littlechild transferred his RRSP to the London Life Insurance Company and designated his wife, Ms. Orpin, as the beneficiary of the resulting RRSP insurance policy.

Two years later (March 15, 2011), he signed a change of beneficiary designation with London Life that removed Orpin and named his sons as beneficiaries. Ten days later, he executed a new will that left his estate to Orpin.

Included in the new will was a broad clause that read: “I hereby designate my spouse […] as the sole beneficiary of all moneys that I may have at the date of my death in any registered retirement savings plan, registered retirement income fund, registered pension plan, registered investment fund or any other similar device […].”

The court concluded the insurance policy was captured by the phrase, “or any other similar device,” creating a declaration in favour of Orpin. One could argue that the policy was held in a resulting trust in favour of the estate. After all, Littlechild controlled the account and had supplied all funds in it. Alternatively, you could argue that Littlechild wanted to benefit both his wife (by naming her beneficiary in his will) and his children (by naming them beneficiaries of the RRSP). The court declined to entertain either argument, and instead chose to concentrate on the interpretation of the will. Orpin got the insurance proceeds, not the sons.

Read: The flexibility of beneficiary designations


In Morrison, the court acknowledged its decision could have an impact on the investment industry. The judge noted there are millions of RRSPs, RRIFs and life insurance policies that have designated beneficiaries, and that the law will be uncertain for some time—presumably until the Supreme Court of Canada has had an opportunity to review the doctrine.

From an advisor perspective, it’s important to ensure a client’s intentions are well-documented. This was certainly the recommended avenue in Morrison, where the judge suggested that, without this evidence, there could be a flood of cases challenging beneficiary designations.

Furthermore, when discussing beneficiary designations, advisors should also keep detailed notes on client intentions and regularly review designations to ensure the client’s intentions have not changed. If there are changes, a new designation should be completed.

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