A recent case in Ontario involves a dispute between two brothers over the proceeds of segregated funds purchased by their late mother.Pgiam/iStockPhoto / Getty Images
The Ontario Superior Court of Justice has ruled that the proceeds of segregated funds belong to the beneficiary designated on the policies, not to the estate.
For the second time this year, the same court has rejected the argument that designated beneficiaries hold the proceeds of registered plans or insurance policies in trust for the estate unless they can prove the deceased intended them to have those proceeds.
However, because of conflicting case law in Ontario and other provinces, the question of whether the proceeds of a plan or policy are presumed to belong to the beneficiary remains unsettled, says Laroux Peoples, an estate lawyer and vice-president of professional services at managing general agency PPI Management Inc. in Toronto.
The case, RBC Life Insurance Company v. Masitch et al, released March 27, involves a dispute between two brothers – one who lives in Toronto, the other abroad – over the proceeds of two segregated funds purchased by their late mother, who also lived in Toronto.
The mother, who died in 2023 without a will, designated her Toronto son as beneficiary of the two seg fund policies.
However, the son who lives overseas argued the proceeds belonged to the estate and should be split between the two brothers according to provincial intestacy legislation.
Faced with disagreement over who was entitled to the proceeds, the insurance company that issued the policies sought and was granted an order to pay the proceeds into court, meaning the court would hold them until the question of entitlement was resolved.
The Toronto brother then brought a motion asking the court to pay him the proceeds of the policies, with interest. He argued, in part, that the beneficiary designations on the policies were clear, and there was no evidence his late mother made a statement or left a document revoking them.
The overseas brother argued his mother had named the Toronto brother beneficiary of the policies simply as a matter of administrative convenience. He also said the Toronto brother had promised their mother, in the presence of all three, that he would divide the proceeds of the policy with his brother equally.
Finally, the overseas brother argued the Toronto brother was only holding the proceeds of the plan in trust for the estate.
In making this argument, the overseas brother relied on Pecore v. Pecore, a 2007 Supreme Court of Canada decision that found a transfer of property for no consideration to an adult child is presumed to be held in trust for the estate unless the child can prove the parent intended them to have the property.
He also relied on Calmusky v. Calmusky, a 2020 Ontario Superior Court decision that applied the “presumption of resulting trust” principle in Pecore to a beneficiary designation on a RRIF.
However, the judge in Masitch rejected the court’s reasoning in Calmusky in favour of its reasoning in Mak (Estate) v. Mak, a 2021 decision.
In Mak, the court found the Pecore principle applies only to gifts during someone’s lifetime, not to beneficiary designations, and that Ontario’s estate law specifically permits a plan holder to designate a beneficiary. (In Masitch, neither brother disputed that seg fund policies were “plans” under Ontario estate law.)
Since the judge in Masitch found the presumption of resulting trust did not apply to the seg funds, the onus fell on the brother living overseas to prove his mother intended the proceeds to be split.
The judge said the overseas brother failed to provide sufficient evidence to show either that his mother made the beneficiary designation only for administrative convenience or that she intended the proceeds to fall into the estate. He also couldn’t prove his brother had promised to share the proceeds.
The judge ordered the seg fund proceeds paid out of court to the Toronto brother, with interest. The overseas brother also had to pay the Toronto brother’s legal costs.
Takeaways for advisors
The Masitch decision was released the day after the same court released Kunka Estate v. Giasson, which found the Pecore principle doesn’t apply to beneficiary designations on a RRIF and a TFSA.
While the two decisions add to the case law rejecting the doctrine of resulting trust applying to beneficiary designations, Ms. Peoples says a decision from the Supreme Court is needed to settle the question.
Given the uncertainty, it’s important that advisors take good notes outlining a client’s intentions when they designate beneficiaries on plans and policies, Ms. Peoples says.
Advisors should also remind clients of the importance of having a will to ensure that everything they’re setting up in their estate planning “flows the way it’s supposed to,” she says.
Editor’s note: This article has been updated to properly identify Ms. Peoples on second reference