Many financial products allow you to designate a beneficiary: insurance policies, pensions, RRSPs, and LIRAs (locked in retirement accounts) are a few examples. By designating a beneficiary, the value of those products passes outside of the owner’s estate (avoid probate) and is not governed by the owner’s will.
While some financial products do not let you change the beneficiary once chosen (i.e. they are “irrevocable”) or the beneficiary is designated by statute, other financial products do not put any restrictions on who may be chosen as a beneficiary (or beneficiaries) and allows the owner to change the designated beneficiary whenever the mood strikes. As it happens, the mood most often strikes after a marriage or divorce. It should come as no surprise then that litigation most often strikes when the deceased forgets to change a beneficiary designation after a marriage or divorce.
Ray-Ellis v Goodtrack et al., 2021 ONSC 3102 involves a dispute over the beneficiary designation of the deceased’s LIRA. In particular, the question before the court was whether the deceased had taken the necessary steps to change the beneficiary designation of his LIRA following his divorce.
In 1997, the deceased named his then-wife (the applicant) as beneficiary of his LIRA. After the death of their child, the couple separated and were divorced in 2001. In 2005, the couple signed minutes of settlement which finally settled the matrimonial proceedings between them. As part of the settlement, the deceased agreed to pay the applicant $100,000 and each signed broad releases giving up any claim to the other’s property.
In 2001, the deceased signed a change of beneficiary form appointing his parents as the new beneficiaries of his LIRA (the deceased also executed a will naming his parents as the beneficiaries of his estate). The change of beneficiary form was witnessed by the deceased’s friend. However, the original was lost – only a photocopy survived at the time of trial. In addition, the change of beneficiary form did not appear to have been sent in or registered with the bank where the LIRA account was held.
The deceased died in 2018. Going through the deceased’s papers, the deceased’s executor found the photocopy of the change of beneficiary form and reached out to the applicant to ask that she release her interest in the LIRA. The applicant refused and commenced the application.
The court confirmed that LIRAs are a form of pension fund under the federal Pension Benefits Standards Act, 1985, RSC 1985, c.32 (2nd Supp.). However, the Pension Benefits Standards Act, 1985 provides that provincial law relating to the designation of beneficiaries applies to the pension plans.
The court further held that in Ontario, the Succession Law Reform Act, RSO 1990, c S.26 (the “SLRA”), governs the designation of beneficiaries of funds and plans. In particular, s. 51 of the SLRA reads:
51 (1) A participant may designate a person to receive a benefit payable under a plan on the participant’s death,
(a) by an instrument signed by him or her or signed on his or her behalf by another person in his or her presence and by his or her direction; or
(b) by will,
and may revoke the designation by either of those methods.
The authenticity of the 2001 change of beneficiary form was undisputed – no party challenged that the form had been completed and signed by the deceased. However, the applicant argued that it had to be registered with the bank in order to become effective. The deceased’s parents disagreed.
The court sided with the deceased’s parents. While it was acknowledged that sending the designation form into the bank would help avoid exactly these types of disputes, it was not a requirement under the statute. All that was required was for the bank to be presented with the latest beneficiary designation.
The fact that the original could no longer be located was not a barrier either – the only formal requirement was that the instrument must be made in writing.
Take-away: best practice would suggest that if you want to change a designated beneficiary, make sure that you do it in writing and alert the bank (this will save headaches in the future).