RRSP designations
A May 10, 2021 CBC article demonstrated the importance of reviewing RRSP beneficiary designations. The article discussed the unfortunate cascade of events where, in 2018, a 50-year-old individual went to the hospital for stomach pain and was diagnosed with cancer. He passed away three weeks later, leaving a spouse and a child. It appeared as if the deceased had not reviewed the designated beneficiary on his $685,000 RRSP, which remained his mother from the time when he had originally set it up while single. Not only did this mean that the surviving spouse and child would not receive these savings, but also that they were effectively liable for the tax on the RRSP funds. Although the will included a clause making the spouse the 100% beneficiary of the estate, this did not override the RRSP beneficiary designation.
While the spouse and mother were able to settle and cover the tax bill with the proceeds of a life insurance policy, the case serves as a good reminder to review whether insurance and registered account beneficiary designations match the current intent of the parties.
Wills
In a March 16, 2021 Ontario Court of Appeal case, a dispute arose over the interpretation of a will regarding how proceeds from the sale of a cottage were to be distributed. As the deceased’s daughters held a life interest in the cottage, the cottage was not sold until more than 40 years after the original owner’s death. The proceeds from the sale of the cottage were to go to the grandchildren. However, within the 40-year period, one of the grandchildren passed away. At issue was whether the proceeds should be split among the four surviving grandchildren, or in five parts, with the deceased grandchild’s estate and beneficiaries receiving a fifth.
The court used the “armchair rule,” which seeks to interpret the will using the same knowledge that the testator had when making the will, and determined that it should be divided into four.
ACTION ITEM: Ensure to review wills and beneficiary designations when major life events or changes in the family occur. Death or critical illness/injury can arrive unexpectedly, limiting the possibility of estate planning updates that can compound the emotional strife of loved ones after an individual’s passing.
