In the recent application of Boulos v. Duca, 2020 ONSC 1946, the Court considered the issue of what becomes of a beneficiary designation of an RRSP when the account is converted to a RRIF, and no subsequent beneficiary designation is made.

Facts:

In the 1980s, Yura Nicola Khagek met a married couple, Edward and Nazha Boulos, through their church. Mr. Khagek became close friends with the Bouloses, and often visited them at their home, even living with them for a period of six months in the 1980s.

In the 1990s, Mr. Khagek moved to California to live in a monastery, but continued to maintain a relationship with the Bouloses, returning each summer to Canada to stay with the couple at their home. Mr. Boulos even handled Mr. Khagek’s financial affairs in Ontario during his absence, such as managing his bank accounts, filing his income taxes, and collecting his mail.

Mr. Khagek held a number of accounts at Duca Financial Services Credit Union (“Duca”), which he held jointly with Mr. Boulos. Mr. Khagek also opened up three RRSPs at Duca, and designated Mr. Boulos as the beneficiary. Mr. Khagek never revoked this designation.

When Mr. Khagek’s mother died in 2008, he told the Bouloses that he had no other relatives, and that they were his best friends and family. He told them that he planned to leave his estate to Mr. Boulos.

In 2011, Mr. Khagek turned 71. In compliance with the requirements of s. 146(2)(b.4) of the Income Tax Act, RSC 1985, c 1 (5^th Supp), Duca automatically converted Mr. Khagek’s RRSPs into RRIFs, bearing new account numbers.

Altough Mr. Khagek never signed beneficiary designation forms for the new RRIFs, during his last visit to Canada in 2012, Mr. Khagek told Mr. Boulos that he wanted Mr. Boulos to be the beneficiary of the RRIF accounts.

On May 7, 2015, Mr. Khagek died in California, without a will. Mr. Boulos’ closest living relative appeared to be a cousin, Aghjan Yakob.

On February 18, 2017, Mr. Boulos died. Mrs. Boulos was named his executor and sole beneficiary of his estate.

Between the summer of 2017 and March 2018, Duca corresponded with Mr. Yakob about settling Mr. Khagek’s accounts at Duca, but Mr. Yakob did not submit the requested information, including confirmation of his identity.

In October 2019, Mrs. Boulos, as estate trustee of Mr. Boulos’ estate, commenced an application seeking an order declaring that Mr. Boulos’ estate was the beneficiary of the three RRIFs held at Duca.

The application was brought on notice to Duca, who agreed to remit the funds contained in the RRIF as directed by the Court. It was also served upon Mr. Yakob, who on two occasions requested a six month adjournment of the hearing. Despite the additional time given to him, Mr. Yakob failed to file a Notice of Appearance or deliver any responding materials. As a result, Mr. Yakob’s second request for an adjournment was declined, and the Court heard the application in writing (on account of COVID-19) on the basis of the materials filed by Mrs. Boulos only.

Analysis

Mrs. Boulos’ application was granted and the funds in the RRIF were held to pass to Mr. Boulos’ estate.

The Court considered Part II of the Succession Law Reform Act (“SLRA), which governs the designation of beneficiaries of interests in funds or plans, including RRSPs and RRIFs. Section 51 of the SLRA provides:

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.

Idem

(2) A designation in a will is effective only if it relates expressly to a plan, either generally or specifically.

The Court applied Ashton Estate v. South Muskoka Memorial Hospital Foundation, 2008 CanLII 21421, which held that RRIFs are connected to, or derivatives of, the RRSPs from which they have been converted. In the present case, Mr. Khagek designated Mr. Boulos as the beneficiary of his RRSPs, which meant that he intended to designate Mr. Khagek as the beneficiary of the funds contained in the RRSPs. As such, the designation followed the conversion of those funds into a RRIF, absent a subsequent revocation of the designation, which did not occur in this case. In addition, the Court applied McConomy-Wood v. McConomy, 2009 CanLII 7174, and considered Mr. Khagek’s intention in making the gift: the unchallenged evidence in this case was that Mr. Khagek wished to gift Mr. Boulos the funds in the RRSPs and the conversion of those funds into a RRIF was automatic, not precipitated by any action taken by Mr. Khagek. The Court held that the funds in the RRIFs therefore passed to Mr. Boulos’ estate.

Take-Away

The moral of this story is for annuitants to update their beneficiary designations when their RRSPs convert to RRIFs in order to avoid any possibility of confusion and any risk their intentions may not be carried out after their death. Moreover, parties cannot rely on the suspension of normal court operations as an excuse to delay or bury their heads in the sand. Matters are moving forward and unless a party has a genuine reason why they need an extension, they will be left behind.