All About Estates

Reaffirming the Status Quo of Beneficial Designations: the saga of Calmusky v. Calmusky continued

The Rippling Effects of Calmusky v. Calmusky

In March of 2020, Lococo J.’s decision in Calmusky v. Calmusky made waves in Ontario’s legal community. (For this reason, it was included in our top 20 estate law cases of 2020. An excellent summary and analysis of that decision by my colleague Demetre Vasilounis can be found here).

By applying the law on the presumption of resulting trust to an RIF, Lococo J.’s decision represented a novel application of Pecore v. Pecore (our leading Supreme Court decision on the law of resulting trusts).

This novel application has garnered concern from financial and legal professionals working in estate and trust law for one reason. It deviates from the status quo that certain legal instruments capable of beneficiary or beneficial designation (i.e., those recognized in Part III, sections 50 and 51 of Ontario’s Succession Law Reform Act as a “plan”, which commonly includes RRSP’s, RIF’s and RRIF’s, and those similarly recognized in section 190 of Ontario’s Insurance Act to include life insurance policies) are outside the grasp of resulting trusts.

This decision has brought uncertainty to Ontario’s estate planning community.

Before Calmusky, a testator may have considered the use of a life insurance policy, RIF or RRIF designation in order to allow specific proceeds to pass to a beneficiary of their choice. When the testator passes away, these amounts would bypass the testator’s estate and go directly to that beneficiary. Now, it is uncertain whether these vehicles would achieve the same objectives. Without ample evidence on one’s intention to benefit the named beneficiar(ies), an application of the resulting trust doctrine may cause these vehicles to backfire, resulting in amounts intended for the named beneficiar(ies) to revert to a deceased’s estate. On a province-wide scale, this could lead to an unnecessary proliferation of litigation.

It is against this backdrop that the Ontario Bar Association (“OBA”) has delivered a submission to the Attorney General of Ontario and the Ministry of Finance, proposing amendments to both the Succession Law Reform Actv and the Insurance Act. These proposals seek to make it crystal clear that when the aforementioned vehicles are used in estate planning, there is no presumption of resulting trust in favour of the testator’s estate.

Enter Mak (Estate) v. Mak

In June of 2021, the Ontario Superior Court of Justice once again had occasion to decide on the issue of whether a presumption of resulting trust applied to a financial vehicle with beneficial designation. The facts of Mak (Estate) v. Mak are similar to those in Calmusky.

The Mak family was a “close-knit family” made up of two parents and four sons. Between 1970 and 1990, various members of this family immigrated to Canada from Hong Kong. Collectively, the parents purchased two rental properties and one family residence.

After the father’s passing, one of the rental properties was sold. The proceeds of that sale, $247,000 was paid into a joint account shared between the mother and one of the four sons, Kenny Mak. This account allowed Kenny to receive its contents by right of survivorship upon the mother’s death. Each son received $10,000 from these proceeds. Later in 2007, Kenny was also listed as the sole beneficiary to the mother’s RRIF account.

After the mother’s passing, litigation ensued between the remaining three brothers and Kenny. Two issues of interest were: (1) Was the 2007 RRIF designation of Kenny as a beneficiary subject to a resulting trust analysis? (2) Was the aforementioned joint account and its contents subject to a resulting trust?

In Calmusky, it was found that the sole named beneficiary of an RIF was not the plan’s ultimate owner, but was rather holding it in trust for the deceased’s estate. Lococo J. cited paragraph 36 of Pecore in finding that a gratuitous transfer of assets from a parent to an adult independent child carried with it a presumption of resulting trust. The adult child must demonstrate on a balance of probabilities that the gratuitous transfer was intended by the parent as a gift to them, otherwise, the transferred asset returns to the deceased’s estate.

As to issue one, McKelvey J. reached the opposite conclusion in Mak for two reasons. First, the law of resulting trust as set out in Pecore occurs in the context of inter vivos gifts. In other words, Pecore and its cannon of cases (including the Ontario Court of Appeal’s decision in Seguin v. Pearson) are about gratuitous transfers which occurred while the transferor parent was alive. Therefore, they should not be used in situations of estate planning, such as planning by use of beneficial designation, where the asset’s transfer can only occur after the transferor’s death.

Secondly, McKelvey J. cites from Demetre Vasilounis’ 2020 contribution to AllAboutEstates.ca (which contains an excellent summary and analysis of Calmusky.) He notes that the operation of financial vehicles such as a life insurance policy, RRIF or RIF does not depend on intent to operate. For instance, McKelvey J. cites section 53 of the SLRA which provides that an institution administering the “plan” must pay it out in accordance with , the beneficial designation, upon the death of the designator. There is no additional requirement on assessing the testator’s intention, as there is in the resulting trust doctrine.

Because the presumption of resulting trust does not apply to the 2007 RRIF, the onus rested with the plaintiff brothers to establish on a balance of probabilities that their mother had intended to benefit her estate, not Kenny. As they have failed to do so, the transfer by RRIF beneficial designation stands.

On issue two, McKelvey J. followed the approach set out in Pecore to find that the contents of the joint account was subject to a resulting trust analysis. However, he required further submissions from the parties on this issue, as insufficient evidence was presented. This is not surprising. Calmusky’s application of Pecore to an inter vivos transfer such as to a joint account was directly in line with Pecore, and was not controversial nor criticized.

Uncertain Futures

By finding that the doctrine of resulting trust does not apply to vehicles of beneficial designation, Mak has taken a step towards re-affirming the status quo (a step welcomed by some estate planning professionals in Ontario). However, an additional unintended consequence is that there are now two contradictory, and arguably irreconcilable Superior Court decisions on the same subject.

Since March of 2020, all decisions citing Calmusky were distinguished from it. Arguably, future adjudicators seeking to uphold the status quo can simply cite Mak with approval and continue to distinguish from Calmusky. In this way, Mak may offer an interim solution to the uncertainty created by Calmusky.

However, this type of interim solution will always lack the clarity of express legislative amendments sought by the OBA. Further, whether future courts will prefer Mak to Calmusky remains to be seen. Will the OBA’s efforts towards legislative amendment pay off? Will there be future cases to offer developments and clarification in the case law?

The future of this particular legal issue is far from determined. Until then, it is prudent for users of beneficiary designations to diligently document their intentions, so that they are protected from potential unintended consequences from applications of the doctrine of resulting trusts.

For a related discussion on changing beneficiary designations, see my colleague Gillian Fournie’s blog post of July 14, 2021.

About Tyler Lin
Tyler Lin completed his articles at de VRIES LITIGATION LLP. His practice focuses on estate, trust and capacity litigation.

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