A judge ruled registered accounts were to be treated according to their beneficiary designations, disagreeing with a 2020 decision.PeopleImages/iStockPhoto / Getty Images
The Ontario Superior Court of Justice has ruled that registered plans are presumed to belong to the designated beneficiary, a ruling experts say is a welcome counterweight to recent decisions that found registered plans belong to the estate.
The decision in Kunka Estate v. Giasson, delivered on March 26, involves the estate of a man who died in 2023, two years after the death of his common-law partner of more than 30 years.
In his will, the man named his stepdaughter and stepson – his late partner’s children – as beneficiaries of the estate and his stepdaughter as executor.
However, in the months before his death, he changed the beneficiaries on both his registered retirement income fund (RRIF) and his tax-free savings account (TFSA) to a woman with whom he had recently become close, replacing the stepchildren. That change ultimately led to the estate dispute.
In this case, the judge ruled the registered accounts were to be treated according to their beneficiary designations, disagreeing with a 2020 decision from the same court.
Previous rulings
The stepdaughter, in her capacity as executor, applied to the court about the RRIF and the TFSA. She argued her stepfather’s friend wasn’t the beneficial owner of the accounts but was instead holding the property in trust for the benefit of the estate.
In making her argument, she relied on Pecore v. Pecore, a 2007 Supreme Court of Canada decision involving an estate dispute over a bank account jointly owned by a woman and her late father.
In that decision, the court found that a transfer of property for no consideration to an adult child is presumed to be held in trust for the estate unless the child can prove the parent intended them to have the property.
The applicant also relied on Calmusky v. Calmusky, a 2020 Ontario Superior Court decision that applied the “presumption of resulting trust” principle in Pecore to a beneficiary designation on a RRIF. Courts in other provinces have also applied the Pecore principle to beneficiary designations.
The judge in Kunka Estate disagreed with the Calmusky decision, saying Pecore was different based on the facts. As beneficiary designations for registered plans are transfers made on death – not during someone’s lifetime, as with naming someone a joint bank account holder – the judge found the presumption of resulting trust doesn’t apply.
The judge also noted that beneficiaries have no access to assets in a registered plan until the holder’s death, while a joint bank account holder can access funds at any time.
Finally, Ontario estate law specifically allows a registered plan holder to designate a beneficiary.
“The legislation clearly signals that registered accounts are meant to be treated according to their beneficiary designations and not as part of a resulting trust for the benefit of the estate,” the judge said.
Given this finding, the judge said the burden fell on the applicant to prove the deceased intended the RRIF and TFSA to go to the estate, and the stepdaughter had not met that burden.
The judge also rejected, for a lack of evidence, the applicant’s claim that her stepfather’s friend had exerted “undue influence” over his decision to change the RRIF and TFSA beneficiary designations.
‘The whole point of a beneficiary designation’
Laroux Peoples, an estate lawyer and vice-president of professional services at managing general agency PPI Management Inc. in Toronto, said the decision in Kunka Estate aligns with most people’s understanding of how beneficiary designations work.
“You wouldn’t designate a beneficiary on an asset unless your intent was that they get it when you die,” she says. “That’s the whole point of a beneficiary designation.”
John Natale, head of tax, retirement and estate planning services, wealth, at Manulife Investment Management in Toronto, said the ruling adds to existing case law that supports beneficiary designations.
However, the question of whether a registered plan is presumed to belong to the beneficiary or the estate won’t be settled, despite the new ruling, until a higher court addresses it or legislative changes are introduced, Mr. Natale says.
Following Kunka Estate, “you can feel more secure [about beneficiary designations], but it’s not guaranteed,” he says.
It still makes sense for clients to document their intentions when designating a beneficiary in case of an estate challenge, Mr. Natale says. For example, a client can prepare a letter expressly stating they intend the account to pass to the beneficiary outside of the estate. Advisors should also document a client’s intentions as part of broader tax and estate planning discussions.
“If the evidence is strong one way or the other, that will overcome whatever presumption might apply,” he says.
Ms. Peoples says that while Kunka Estate addressed beneficiary designations on registered plans, it strengthens the argument that the Pecore principle also doesn’t apply to beneficiary designations on insurance policies.
“It sets a precedent for the argument that if an asset is regulated by provincial legislation, it might be outside the scope of ‘presumption of resulting trust,’” she says.