BENEFICIARY DESIGNATIONS AND RESULTING TRUSTS
The 2020 case of Calmusky v Calmusky https://www.canlii.org/en/on/onsc/doc/2020/2020onsc1506/2020onsc1506.html?autocompleteStr=calmusky&autocompletePos=1 has created an uproar among estates practitioners with respect to beneficiary designations on registered accounts.
In this case, we have two brothers disputing what their father’s intention was as to banking arrangements and certain asset entitlements.
Henry Calmusky died in 2016 leaving two sons, Randy and Gary, surviving him. He had a will prepared in 2014 directing that the residue of the estate was to be divided between his nephew, Norman, and his grandson, Kyle, who was one of Randy’s children.
At the date of his death, Henry had two bank accounts, which he held jointly with a right of survivorship with Gary. Holding an asset jointly with a ‘Right of Survivorship’ means that if one owner dies, the other holder of the asset automatically becomes the owner. Henry also had a Retirement Income Fund (“RIF”) to which he designated Gary as beneficiary. Up until this case was argued, it was an accepted legal principle that assets with a designated beneficiary do not form part of the deceased’s estate.
Randy brought a court application arguing that the joint bank accounts as well as the RIF were being held in trust for the benefit of the estate. His position was that the legal principle in the well-established Supreme Court of Canada case of Pecore v Pecore applied not only to the joint bank accounts but also to the account where there was a designated beneficiary. The Pecore principle states that where an adult child holds an account jointly with an adult parent, notwithstanding that it is held with a right of survivorship, the adult child holds the account in trust for the benefit of the adult parent. The reasoning behind this principle is that typically bank and other accounts held between adult children and parents are set up that way to facilitate day to day dealings on the account, for example, helping an elderly parent pay bills.
In Calmusky, it was not surprising that the judge found the two joint bank accounts Henry held with Gary to be held in trust for the estate, but what was surprising is that the judge agreed with Randy’s position regarding the RIF and applied the principle in Pecore to find that it was also held in trust for the benefit of the estate.
As mentioned initially, this has created quite a stir within the estates bar because it will potentially create litigation which may be based on bad law and could potentially defeat a testator’s intent with respect to the disposition of registered investments upon their death. The decision in this case is problematic as it also conflicts with legislation that is in place that specifically provides that a designation may be made to certain registered assets and insurance proceeds without the need to flow through the estate and therefore be subject to probate.
While this case has not been appealed in court, the Ontario Bar Association Trusts and Estates division has made a submission to the Attorney General citing the potential problems this case could create and proposed that legislation should be introduced under the Succession Law Reform Act as well as the Insurance Act to make it clear that the Pecore principle should not apply to registered beneficiary designations.
It remains to be seen what will come of this.
If you have any questions about how this court decision may impact you and your estate, contact our Wills and Estate Succession Group:
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice based on their specific situations.