“In this world nothing can be said to be certain, except death and taxes.” — Benjamin Franklin

Not long ago, Canadian pension blogs were ringing the death knell and warning plan administrators about the collapse of the “spouse-in-the-house” rule arising from the unexpected decision in Carrigan v. Carrigan Estate. Flash forward 18 months and new B.C. legislation is creating additional challenges for benefits administrators attempting to pay death benefits to a deceased’s intended beneficiary.

In Carrigan, the pension plan administrator had been grappling with death benefit claims from competing spouses. Contrary to prevailing industry expectations, the Ontario Court of Appeal denied payment of the death benefit to the common-law spouse of a deceased plan member because the member was legally married to another person at his death. It concluded the benefit should be paid to the designated beneficiary instead, who happened to be the married spouse (and her two daughters) and, hence, the common-law spouse, who had been living with the plan member at time of death, was denied the death benefit.

Carrigan highlights the death-related challenges facing benefits administrators and the importance of keeping beneficiary designations up to date.

Beneficiary designation provisions in B.C.’s new Wills, Estates & Succession Act (WESA) apply to myriad benefits plans, including pension and retirement plans, welfare or profit-sharing funds and any trust, scheme, contract or arrangement created for the benefit of B.C. employees. The new provisions permit participants to designate beneficiaries in a variety of written instruments. They apply regardless of whether the benefit plan grants the right to designate a beneficiary and override inconsistent plan provisions. However, they do not override plan provisions or beneficiary designations authorized by another statute of B.C. or Canada.

Similar to legislation in certain other Canadian jurisdictions, the new B.C. provisions allow participants to designate one or more beneficiaries in their wills and to alter or revoke such designations, unless made irrevocable. Other highlights include the following:

  • beneficiary designations can be made irrevocable—useful for certain estate planning and marriage breakdown situations;
  • legal representatives with authority over a participant’s financial affairs (e.g., under a Power of Attorney) can designate a beneficiary with court authorization—useful where a representative is undertaking estate planning on behalf of an incapable participant;
  • legal representatives can make a new designation of the same beneficiary without court authorization if it renews, replaces or converts a similar designation made by the participant while capable—useful when a representative is simply changing financial institutions or converting one plan to another (e.g., RRSP to registered retirement income fund) on behalf of a participant; and
  • a trustee can be appointed to receive benefits on behalf of a designated beneficiary—useful where minor children or incapable beneficiaries are to receive benefits.

WESA creates challenges for benefits administrators because, except for irrevocable designations, there is no filing requirement when new beneficiaries are designated and revocation of existing designations can occur without notice. While the legislation attempts to address some administrative hazards, many potential pitfalls remain for the unwary.

Benefits administrators need to be particularly vigilant, for example, where beneficiary designations in a will are revoked by a later instrument (which may or may not be a will), where a revoked will containing a beneficiary designation is revived by codicil, or where a beneficiary designation is made in a purported will which is later determined to be invalid as a will. Consider further the fact that the revocation of a will is said to revoke a beneficiary designation in that will but does not revive an earlier beneficiary designation. With these types of challenges, benefits administrators will frequently be in danger of paying the wrong beneficiary.

Fortunately the new legislation provides a small degree of protection. Where benefits are paid to designated beneficiaries in accordance with the plan, benefits administrators are discharged in respect of those payments even if they later receive notice of change of beneficiary. However, this protection may not apply to all situations, can still lead to costly litigation among competing parties and does not alleviate the uncomfortable fact that, in some cases, at least, a participant’s testamentary intentions may go unfulfilled.

WESA’s arrival should be viewed as an opportunity to take action on death benefits administration. Benefits administrators should review their plans and, where appropriate, adopt amendments. Appropriate communication strategies should be developed to educate participants, particularly on the need to keep beneficiary designations up to date (cite Carrigan as an example) and to advise of changes to their designations. Finally, benefits administrators must review and update policies and procedures dealing with the payment of death benefits.

The ability of participants to designate beneficiaries in a variety of written instruments, which may or may not be filed with the benefits administrator, creates potential pitfalls that need to be addressed in administrative policies. In addressing current policies, administrators should ask themselves the following:

  • Do our policies mandate sufficient investigation and documentation prior to paying death benefits?
  • Have our decision-makers been sufficiently trained to address the complexities arising from competing claims for benefits?
  • Do our communications accurately reflect the complex issues surrounding the designation of beneficiaries and that arise following the death of a participant?

While death and taxes may be certain, WESA creates uncertainty surrounding the payment of death benefits. Participant education, informative communications and clear administrative policies will increase the likelihood that a participant’s final intentions are accurately carried out. Death and taxes not being unique to B.C., it would be prudent for benefits administrators across Canada to review their own death benefits administration.

Claude Marchessault is an experienced lawyer and head of the pension & benefits practice group at Harris & Company LLP in Vancouver, B.C. He advises employers in the public and private sectors about employment, pension, trust, benefit and compensation issues. From 2009 to 2013, Marchessault was an adjunct professor of law for the Faculty of Law at the University of Victoria where he taught Succession and Estate Planning. The views expressed are those of the author and not necessarily those of Benefits Canada.

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Copyright © 2019 Transcontinental Media G.P. Originally published on benefitscanada.com

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