Making And Revoking Of Beneficiary Designations – Part V

We have made note this week of the fact that a beneficiary designation is subject to considerably less legal formality than a Will. The fact that many Canadians do not have Wills often means that the designation of a beneficiary is the primary means by which an individual engages in estate planning. This is particularly true of those in their thirties or forties whose largest assets will often be RRSPs or life insurance policies. We have noted that such estate planning has the benefit of clearly directing assets to the intended beneficiary without the need for obtaining probate of a Will.

Certainly, non-legal professionals such as financial advisors will frequently highlight the benefits to their clients of structuring their affairs in such a way as to minimize estate administration tax. Lawyers, as well, will recommend such benefits, mindful of the pitfalls associated when a beneficiary does not act as intended. For instance, where an individual designates a beneficiary of an asset, not for that person’s personal benefit but rather, to distribute in accordance with a Will or some other written or verbal instructions (ie. a secret trust), the issue of trust becomes paramount.

What if the beneficiary does not distribute the asset as the deceased intended but keeps it for herself? For the litigation lawyer, it may be a serious challenge to prove a breach of trust on behalf of disappointed beneficiaries. The designated beneficiary can simply take the position that she has received all right, title and interest in the asset. If the designated beneficiary is herself named executor of the deceased’s estate, there may well be some legitimate questions as to whether she was expected to distribute the asset in accordance with the Will. The designation, if contained in the Will, may ideally clarify whether the asset is to be subject to the terms of the Will.

Have a great weekend and we’ll be back on Tuesday, David. ——–