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

swetzel@davis.ca

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