Estate Planning Council of Abbotsford - February 2014 presentation by Sadie Wetzel, Associate Counsel, Davis LLP

1. BENEFICIARY DESIGNATIONS
Tips and Traps
Estate Planning Council of Abbotsford
February 19, 2014
Sadie Wetzel

2. Topics
•
•
•
•
•
•
•
•
New regime under WESA
What is a designation?
Trustees
Irrevocable designations
Who can make, alter or revoke designations?
By way of will or separate document?
Notice requirements
Tidbits

3. Designations - Old Regime
•
Insurance Act
• s. 48: may by contract or declaration designate beneficiary
• ―declaration‖ – instrument including a Will
•
Law & Equity Act
• in accordance with the Plan
• s. 49 (RRSP) and 51 (RRIF): designation in writing or in
Will

4. ―Benefit Plan‖ Designations - New Regime
Wills, Estates and Succession Act
S.B.C. 2009, c. 13
comes into force on March 31, 2014

5. ―Benefit Plan‖ - WESA
•
Broad definition
•
•
•
•
•
•
a pension plan
a profit sharing fund
RRSP
RRIF
TFSA
others

6. When Does Part 5 of WESA Apply?
•
If the participant dies on or after March 31, 2014
• regardless of when the designation was made (s. 187)
•
Even if the terms of the particular plan or fund are
inconsistent with WESA (s. 84)
• under old regime, the terms of the plan determined
whether a designation could be done by will—not all plans
permitted this option

7. When Does WESA Not Apply?
•
Life Insurance and Accident and Sickness Insurance
• Insurance Act continues to govern
•
When WESA is inconsistent with other enactments of
BC or Canada
• e.g./ pensions registered under the Pension Benefits
Standards Act

8. What is a Designation?
•
•
Document in writing
Signed
No other formalities
• Dated
• Witnessed

9. Designation
1. By will
2. With plan administrator
3. By separate document

10. Revocable Designations By Will
•
•
•
•
•
Must refer to Benefit Plan (e.g./ not caught by residue
clause)
Designation may be valid even if document is not a
valid will
Effective from the date of the designation
May be altered or revoked by later designation
Revocation of the will revokes the designation
• an earlier designation is not revived

11. Distribution of Benefit Plan Proceeds
•
Paid to designated beneficiaries in equal shares
• can override general rule by specifying different division
(s. 86)
•
If beneficiary dies before participant
• (1) alternate
• (2) surviving beneficiaries in equal shares
• (3) estate of participant

12. Five-Day Survival Rule
•
WESA - for person to survive other for purposes of
affecting estate or property, person must survive other
for at least 5 days
• query whether s. 10 of WESA applies to Benefit Plan
•
Interpretation Act - exclude first day and count last day
• if Sam dies on Sunday, Alex must be alive on Friday to
have survived Sam

13. Common Drafting Issue
•
•
•
•
Pay proceeds to my son and daughter
Daughter dies
Son B gets 100% of proceeds
What if daughter died leaving children?

14. Another Drafting Issue
Divide proceeds into 10 equal shares and give:
• one share to son A
• three shares to son B
• six shares to favourite daughter
•
daughter dies
• son A gets 4 shares
• son B gets 6 shares
• daughter’s children get nothing

15. Irrevocable Designations
•
•
•
Welcome change
Consent of beneficiary required to alter or revoke
Must be filed with office in Canada specified for that
purpose by administrator
• otherwise revocable designation
•
Must be done by separate document
• designation by will takes effect as revocable designation

16. Trustee for Designated Beneficiary
•
•
Can appoint a trustee for a designated beneficiary
Welcome news
• minor beneficiaries
• disabled adult beneficiaries

17. Who Can Make, Alter or Revoke a Designation?
•
Participant
• May be signed by another person at direction of
participant (and in the presence of the participant)
•
Attorney acting under enduring power of attorney and
committee of affairs under Patients Property Act can:
• maintain designations on new plans without court approval
• make, alter or revoke designations with court approval

18. Exception to General Rule - Who Can Make, Alter
or Revoke a Designation, cont.?
•
Only will-maker can make, alter or revoke designations
when original designation was done by will

19. Benefits Not Part of Estate
•
•
Not part of the estate and not subject to the claims of
the participant’s creditors (s. 95)
Benefits
•
•
•
•
•
Assets transferred (almost) immediately on death
Reduce probate fees (1.4%) and other estate costs
Privacy
Creditor protection
Limit Wills Variation Act exposure

20. Designation with Plan Administrator?
Pros:
• Ease of doing designation with administrator
Cons:
• May be limits to naming alternates or trustees
• Designation may not be kept current when the client
updates estate plan

21. Designation by Will?
Pros:
• Reduced cost and increased efficiency of working within
the existing will vs. preparing a separate designation
• Can draft complicated trusts
Cons:
• Disclosure of the entire will to each plan administrator
• Irrevocable designations cannot be done by will

22. Designation by Separate Document?
Pros:
• Greater certainty that plan proceeds will not form part of
the estate
• Greater privacy than designation by will
Cons:
• Designation may not be kept current when the client
updates estate plan
• Greater expense

23. Pro or Con Depending on Client
•
Ability of an attorney or committee to ―make, alter or
revoke‖ a designation or to maintain a previous
designation

24. Notice
•
•
Provide notice of designation to plan administrator
Note - special rules for irrevocable designations

25. Tidbits - RRSP/RRIF Rollover to Spouse
•
Income tax burden falls on the estate
• problem when spouse elects out of the rollover
•
•
spouse will receive the full proceeds of the plan
estate is responsible for the related income tax

26. Tidbits - RRSP/RRIF Rollover to RDSP
•
•
Section 60.02 of the Income Tax Act
a child or grandchild
• financially dependent because of mental or physical
infirmity
• eligible for the disability tax credit
• under the age of 59
• the total of all contributions
• must not exceed $200,000

27. Tidbits - TFSA
•
•
Income Tax Act distinguishes between ―designated
beneficiaries‖ and ―successor holders‖
favourable tax treatment if surviving spouse a
successor holder (rather than as a beneficiary)
• spouse becomes the new holder
• any income earned after death sheltered from tax
• spouse’s unused TFSA contribution room is unaffected

28. Questions?

29. Other Resources
•
•
WESA Transition Guide, looseleaf and online (CLEBC,
2010)
P.W. Bogardus, Q.C. and Mary B. Hamilton, Wills
Precedents - An Annotated Guide (CLEBC, looseleaf
and online)

30. THANK YOU!
Sadie Wetzel
T 604.643.6499
F 604.605.3739
swetzel@davis.ca
2800 Park Place
666 Burrard Street
Vancouver, BC V6C 2Z7
Follow us @DavisLLP

31. Wills, Estates & Trusts
Vancouver Group
604-687-9444
Kate BakePaterson
Paul Beckmann,
Q.C.
Michelle Isaak
Lauren Blake
Howard Kellough
Rhys Davies, Q.C.
Paul Lailey
Tim Duholke, FCA
Roger Lee
Emma Ferguson
Will Todd
Mary B. Hamilton
Sadie Wetzel
Alyce Harper
Dennis Yee