Important Case Update: Designating a Beneficiary Under an RRSP

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The recent British Columbia case of Desharnais v. Toronto Dominion Bank (the “Bank”) and TD Securities Inc. (“Evergreen”) illustrates some important issues pertaining to the use of an enduring power of attorney and the transfer of RRSP assets involving a designated beneficiary.

The facts in Desharnais are straight forward. Mr. Hawthorne (“H”) had an RRSP at the Bank under which he had designated his common law spouse, Ms. Desharnais (“D”), as the beneficiary. In April of 1996, he executed an enduring power of attorney in her favour. Shortly thereafter, H underwent brain surgery to remove a tumor and became incompetent. In 1998, D, on the advice of Evergreen and by utilizing the power of attorney, transferred the RRSP from the Bank to Evergreen. Evergreen assisted D in the preparation of the transfer forms and sent them to her for signing with the portion “Designation of Beneficiary” incomplete. D signed the forms and returned them to Evergreen without designating a beneficiary. In 1999 H passed away. D was not a beneficiary under his Will. When D transferred the RRSP from the Bank to Evergreen without completing a “Designation of Beneficiary” she in effect changed the beneficiary from herself to the estate, with the unintended result of her not receiving the RRSP proceeds upon H’s death.

D sued the Bank and Evergreen for failure to advise her to complete the “Designation of Beneficiary”. The Supreme Court found and the Court of Appeal affirmed that Evergreen was negligent and in breach of fiduciary duty in failing to advise her of the consequences of not designating a beneficiary. She was awarded $138,000 in damages, being the amount of the RRSP at the date of H’s death and interest.

An interesting aspect of Desharnais, which was considered at the trial but regrettably not on appeal, was whether D had the power and authority, as attorney, to effect a change of designated beneficiary. There is little jurisprudence on what can and what cannot lawfully be done by an attorney. This is a vital issue: an attorney’s actions implemented but beyond the attorney’s scope of authority are ineffective and void at law. In Desharnais, the Court refers to a Legal Education Society of Alberta report dated 1991 and gives as examples the following actions which are beyond the authority of an attorney:

  1. the making of a Will;
  2. the exercise of a power of a discretionary nature given personally to the donor;
  3. the exercise of the donor’s duties as a trustee or as an executor; and
  4. the serving of a prison term.

Changing the marital status of the donor might also be added to this list. Of these actions, the most important in connection with Desharnais is making a Will.

In Desharnais, the trial judge states, in the context of whether D had the power and authority to effect a change of designated beneficiary:

I have been referred to no authority which suggests that his attorney could exercise his power.

The Supreme Court further found that:

The changing of the designated beneficiary is testamentary in nature. The process by which Ms. Desharnais accomplished the change was not in accordance with the Wills Act, only Mr. Hawthorne has testamentary capacity. The change was invalid. The purported transfer of the RRSP was not in accordance with the law. Ms. Desharnais was not acting legally.

Thus, the Supreme Court clearly includes the making or the changing of a designated beneficiary as an action which is testamentary in nature and cannot be lawfully done by an attorney. As a consequence, when transferring an RRSP, or when rolling over an RRSP to an RRIF where there is a designated beneficiary in the plan, the attorney must designate the same beneficiary in the new plan. If there is no designated beneficiary then the attorney cannot designate a new beneficiary.

Desharnais is also consistent with the general proposition that an attorney should not utilize the authority given to him or her to frustrate the testamentary intentions of the donor. Thus, an attorney, when agreeing to take on the task should make himself aware of the testamentary intentions of the donor so that he does not either intentionally or inadvertently violate the same.