Tips and Traps of Beneficiary Designations
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Transcript of Tips and Traps of Beneficiary Designations
BENEFICIARY DESIGNATIONSTips and Traps
Estate Planning Council of Abbotsford
February 19, 2014
Sadie Wetzel
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
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
“Benefit Plan” Designations - New Regime
Wills, Estates and Succession Act
S.B.C. 2009, c. 13
comes into force on March 31, 2014
“Benefit Plan” - WESA
• Broad definition• a pension plan• a profit sharing fund• RRSP • RRIF • TFSA • others
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
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
What is a Designation?
• Document in writing• Signed
No other formalities• Dated• Witnessed
Designation
1. By will
2. With plan administrator
3. By separate document
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
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
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
Common Drafting Issue
• Pay proceeds to my son and daughter• Daughter dies • Son B gets 100% of proceeds • What if daughter died leaving children?
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
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
Trustee for Designated Beneficiary
• Can appoint a trustee for a designated beneficiary• Welcome news
• minor beneficiaries• disabled adult beneficiaries
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
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
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
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
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
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
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
Notice
• Provide notice of designation to plan administrator • Note - special rules for irrevocable designations
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
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
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
Questions?
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)
THANK YOU!
Sadie Wetzel
T 604.643.6499 F 604.605.3739
2800 Park Place666 Burrard Street
Vancouver, BC V6C 2Z7 Follow us @DavisLLP
Kate Bake-Paterson
Wills, Estates & TrustsVancouver Group
604-687-9444
Paul Beckmann, Q.C.
Lauren Blake Rhys Davies, Q.C. Tim Duholke, FCA Emma Ferguson Mary B. Hamilton Alyce Harper
Michelle Isaak Howard Kellough Paul Lailey Roger Lee Will Todd Sadie Wetzel Dennis Yee