MAKING AND REVOKING OF BENEFICIARY DESIGNATIONS - PART IV
Earlier this week we discussed the interaction between Will challenges and challenges to beneficiary designations. Specifically, an invalid Will may nonetheless contain a beneficiary designation which will be recognized by the Court as valid. An example would be a Will witnessed by only one person and therefore invalid in Ontario. Since there are no formal requirements required for the making of a beneficiary designation, a beneficiary designation contained in such Will may still be valid.
But what is the test for capacity to make a beneficiary designation? It would appear that the test is similar to the test for testamentary capacity to make a Will. The onus is on the proponent of the new designation to show that the maker of the designation had the necessary mental capacity to understand what he was signing.
What if a person is incapable? Can their attorney under a power of attorney for property make a beneficiary designation on their behalf?
It seems settled that an attorney under a Continuing Power of Attorney for Property cannot appoint a beneficiary under a life insurance policy or a registered plan as these acts are in the nature of a testamentary disposition.
Let us consider the situation in which the donor becomes incapable at the age of 65 and holds an RRSP designating his son as beneficiary. At the age of 69, the RRSP is converted into a RRIF. If the financial institution requires a new beneficiary designation to be made at the time that the RRIF is opened, it would appear that the attorney does not have the authority to make this designation on the grantor's behalf because it is in the nature of a testamentary disposition. It is a nice question whether an attorney in such circumstances can receive the approval of the court to continue the pre-existing designation. To prevent it would be to permit a change in a testamentary disposition by operation of statute which would likely be contrary to the intention of the donor.
A relevant case was considered in British Columbia in 2001. An attorney for property transferred an RRSP from TD Bank (under which she was designated beneficiary) to TD Evergreen. TD Evergreen did not provide for her continuance as designated beneficiary. The Court found that the transfer of the RRSP was made for want of authority being in the nature of a testamentary disposition. The Court seemed to suggest that the transfer would have been permissable if the attorney's status as designated beneficiary remained unchanged in that there would have effectively been no change in the testamentary disposition. (Desharnais v. Toronto Dominion Bank [2001] BCJ No. 2547 (BCSC).
Have a great day, David --------
