Revoking Designated Beneficiaries: Better Safe than Sorry!
Once parties have completed a separation agreement or have finalized the division of property after a divorce or relationship breakdown, each may believe that they have sufficiently dealt with property matters and can move on with their lives having successfully disentangled themselves.
This may not always be the case. There may be other matters not specifically dealt with either by way of an agreement or court ordered division of assets, such as estate planning issues. Life insurance policies and Registered Retirement Savings Plan accounts are examples of the types of assets where spouses often designate each other as beneficiaries. Some designations may be irrevocable, while others are revocable.
In a recent Ontario case, Purcell v. M.R.S. Trust Co. [2004] O.J. NO. 3856, a former wife claimed RRSP proceeds from the estate of her ex-husband because he had failed to change the designation on the RRSP before his death.
The parties had a lengthy marriage. Several years before the divorce, the husband had named the former wife as the beneficiary of his self-directed RRSP with the M.R.S. Trust Co. The designation was not stated to be irrevocable, a key fact in this case.
On October 10, 2001 the parties signed a Corollary Relief Judgment by consent, which settled the property issues between them, and they were divorced on that date. The Judgment specifically provided that the husband would be the sole owner of the disputed RRSP policy, free of any claims by his former spouse.
The husband and his new partner, Ms. Purcell, lived together from June 1999 up until the time of the husband’s death on September 30, 2002. The husband completed a new Will after the divorce, and left his ex-wife, Ms. Nixon, the sum of one dollar, noting that she had already received more than $200,000 in the divorce settlement. The remainder of the estate was left to his children and Ms. Purcell.
The Ontario Succession Law Reform Act provides that a designation of a beneficiary under a plan, such as the RRSP in question, may be done by an instrument signed by the participant or by Will. The husband did not specifically revoke the designation of Ms. Nixon as beneficiary.
After the husband died, Ms. Nixon claimed that the proceeds of his RRSP should go directly to her as the designated beneficiary, and not to the estate. Ms. Purcell, as executrix of the Will, brought the court action seeking a determination of the ownership of the RRSP proceeds.
The Court reviewed the decision of the Ontario Court of Appeal in Burgess v. Burgess Estate, which was based upon remarkably similar facts. In that case, the former wife had claimed the entire proceeds of the RRSP from the estate, but was limited by the Court of Appeal to the one half that was contemplated in the parties’ separation agreement.
In this case, the Court found that since the RRSP was not irrevocably designated to Ms. Nixon and since it was considered by the parties and dealt with in the Corollary Relief Judgment, Ms. Nixon was not entitled to claim the RRSP benefits.
The Court held that the Corollary Relief Judgment effectively revoked the designation of Ms. Nixon as a beneficiary of the RRSP, and the RRSP benefits devolved to the husband’s estate to be distributed in accordance with his Will.
Although the Court’s analysis in this case was based upon the Ontario Succession Law Reform Act, there are similar provisions in the British Columbia Law and Equity Act.
It is uncertain whether or not the Court’s decision would have been the same if the RRSP designation was irrevocable. Even though a separation agreement or consent Order may act to revoke a designation, it would be wise to review all policies or plans with designated beneficiaries and to ensure those designations are properly changed. As the saying goes, it is better to be safe than sorry.
