When taking instructions for an estate plan and drafting estate planning documents, a lawyer must make inquiries of the client’s existing beneficiary designations including life insurance designations in the client’s estate plan and must confirm the client’s understanding of same before drafting the will.¹
When advising a client about their estate plan the lawyer must inquire whether it is the client’s intention to make a gift to the beneficiary when designating a beneficiary inside or outside the Will, and to document that intention.²
When drafting a change or confirmation of beneficiary designation by Will, the lawyer must advise the client of the effect of revocation or confirmation of such current policy, plan or account using the Will as the revocation or confirmation document.³
When taking instructions for an estate plan, the lawyer must advise of the effect of future changes to beneficiary designations the client may make outside the Will in such policy, plan or account after the Will is executed.⁴
1. Fitzgerald Estate v. Fitzgerald, 2021 NSCC 355, Calmusky v Calmusky, 2020 ONSC 1506; Mulrooney Estate (Re), 2016 NSSC 352; Dreger (Litigation Guardian of) v. Dreger, 1994 CanLII 16643 (MBCA); Neufeld v Neufeld, 2004 BCSC 25; Nelson v Little Estate, 2005 SKCA 120; Morrison Estate (Re), 2015 ABQB 769; McConomy-Wood v. McConomy, 2009 CanLII 7174 (ONSC); Mak (Estate) v Mak, 2021 ONSC 4415; Moore v Sweet, 2018 SCC 52; Di Ielsi c. Blasi, 2013 QCCS 3063 (CanLII); Jason M. Chin, Archie Rabinowitz and Aoife Quinn, “The Presumption of Resulting Trust and Beneficiary Designations”, Alberta Law Review.
2. Ibid; Conner v Bruketa Estate, 2010 ABQB 517.
3. Moore v Sweet, ibid.
These are guiding principles to assist with meeting the Standard.
When drafting estate planning documents, the lawyer should:
- Advise the client that assets may pass both outside the will and inside the will and assist the client to identify such assets.
- Request the client to confirm the existing beneficiary designations before drafting the Will. It is advisable to have the client confirm the existing beneficiary designations and any updates made prior to the execution of the will so that the designations are aligned. It is good practice to confirm the status of the beneficiary designations in the final report to the client as well as communicating that future changes in beneficiary designations may affect the estate plan in a significant way.
- Encourage client to align the will and beneficiary designations.
- Request the client to confirm he or she is the owner of the plan or policy or account and has the authority to designate a beneficiary. Note some pension plans define who the beneficiary is and cannot be changed even by separation agreement. See Tower v Estabrooks, 2012 NBCA 27 and Snell v McGregor, 2014 SKQB 108.
- Advise the client to confirm whether it is their intention to make a gift or not, when using beneficiary designations. The presumption of resulting trust may apply to beneficiary designations in certain cases unless intention to make a gift is stated or clear. See Fitzgerald Estate v. Fitzgerald, 2021 NSSC 355, Mak (Estate) v Mak, 2021 ONSC 4415 and Calmusky v Calmusky, 2020 ONSC 1506. See https://hullandhull.com/tag/beneficiary-designation/ and https://www.allaboutestates.ca/presumptive-peril-law-beneficiary-designations-now-flux/ for case analysis.
- Advise the client regarding the income tax implications of designating beneficiaries on certain registered plans. Note that when an Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) is paid out to the designated beneficiary after death, the income tax due (from the inclusion of that income in the T1 Terminal Tax Return) is not withheld from the RRSP or RRIF at source and is payable from the estate assets, if sufficient. The tax liability initially rests with the estate, but the beneficiary can still be liable to pay the tax if the estate assets are not sufficient. Refer to Income Tax Standard for more information.
- Advise the client that a right of survivorship will apply only to the beneficiaries named on the plan who are alive at the time of the client’s passing.
- Advise the client not to name minor beneficiaries without including a Trustee and advise of the option to set up a trust in the Will for the minor beneficiaries.
- Advise the client that a future beneficiary designation made on a plan, policy or account after execution of the Will takes precedence over a properly drafted beneficiary designation in the Will.
- Consider using a hotchpot provision to bring designated beneficiary benefits into the accounting of the share of a beneficiary in a Will. This permits the testator to equalize all beneficiaries both inside and outside the Will when a beneficiary predeceases the testator and the alternate beneficiary in the will does not receive the benefit of the assets passing by beneficiary designation. The hotchpot clause can equalize the share of the deceased beneficiary to allow the share to pass to an alternate beneficiary.
- Use appropriate language when creating a beneficiary designation with the Will and advise the client to provide a copy of the Will to the institution holding the asset as notification of the revocation. Preferably have institution acknowledge beneficiary designation change. See Di Ielsi c. Blasi, 2013 QCCS 3063 (CanLII).
- Be cautious when drafting the general revocation clause, not to inadvertently revoke beneficiary designations which are intended to remain. See Hurzin v. Great West Life Assur. Co., 1988 CanLII 2980 (BCSC) and Barry v. Bezanson, 1995 CanLII 4251 (NSCA).
- It is good practice, when designating a beneficiary by Will, to place the beneficiary designation within the body of the will before the general vesting of assets into the name of the Personal Representative to provide clarity that the policy, plan or account does not vest in the Personal Representative, but passes outside the will.
- It is good practice to review Separation Agreements which may obligate a testator to maintain certain beneficiary designations.
- Jason M. Chin, Archie Rabinowitz and Aoife Quinn, “The Presumption of Resulting Trust and Beneficiary Designations”, Alberta Law Review.
- Report by Alberta Law Reform Institute, “Beneficiary Designation by Substitute Decision Makers”. This report contains a discussion about beneficiary designations in general.