BENEFICIARY DESIGNATIONS AND RESULTING TRUSTS
Maria Elena Hoffstein
Partner, Fasken Martineau DuMoulin LLP
416 865 4388, [email protected] *
A.
INTRODUCTION:
In Waters’ Law of Trusts in Canada1 it is noted that a trust can come into existence in one
of two ways: either by a demonstration of intention to settle property by way of trust or a trust is
imposed in a given situation to ensure that property passes in a certain way (constructive trust or
resulting trust for example). Various terms have over the years been used to describe the
different types of trusts, the familiar ones being express trusts, implied trusts, resulting trusts and
constructive trusts. Sometimes the lines between these different types of trusts are blurred and
are given different meanings by different authors.
Generally speaking, however, the terms “express” or “implied” trust refer to the intention
of the settlor - either the intention to create a trust is clear (express) or even though not clear, it
can be construed that a trust was intended.
With respect to resulting trust, there is debate as to whether it involves a determination of
the intent of the settlor as to whether a trust was intended or whether it relates to a trust
obligation imposed by law. One thing to note is that unlike an express or implied trust which is
concerned with the intention of the settlor, a resulting trust is concerned with what happens to
property.
*
1
The author wishes to thank Marc S. Lefler, Student at Law, for his assistance in the preparation of this paper.
Donovan W. M. Waters, Waters’ Law of Trusts in Canada, 3d Ed, (Toronto, Carswell, 2005) at 22.
DM_TOR/900030.00040/2184945.1
-2A constructive trust has been viewed in Canada since the milestone case of Becker v.
Pettkus,2 as a remedy for unjust enrichment and can be invoked even in situations where there is
no unjust enrichment if the court finds there have been wrongful gains.3
It is outside the scope of this paper to discuss the nuances of the various types of trusts
but one author expresses the differences in simple terms in the following comment:
“the courts and the various legislatures of the common law world
have used interchangeably the terms “implied trust”, “resulting
trust” and “constructive trust”, and the terminology is therefore
somewhat confusing. But essentially, while express trusts are those
which come into existence because settlors have expressed their
intention to that effect, constructive trusts arise not because of
anyone’s expression of trust intent but because B ought to
surrender property to A and this is the machinery the court
employs in order to get B to do that. In between the express trust,
a product of the settlor’s intention, and the constructive trust, a
machinery imposed by law, are the implied trust and the resulting
trust.”4
The focus of this paper will be on resulting trusts and in particular the application of the
resulting trust to beneficiary designations of insurance policies and RRIFs/RRSPs and will
review the recent cases of Neufeld v. Neufeld5 and Mitchell v. Clarica Life Insurance Co.6
B.
WHAT IS A RESULTING TRUST?
D.W.M. Waters articulated the resulting trust principle as follows:
Broadly speaking, a resulting trust arises whenever legal or
equitable title to property is in one party’s name, but that party,
2
[1980] 2 S.C.R. 834, 117 DLR (3d) 257 (S.C.C.).
Soulos v. Kovkontzilas [1997] 2 S.C.R. 217, 146 DLR (4th) 214 (S.C.C.).
4
Supra note 1 at 362.
5
[2004] B.C.S.C. 25 (Neufeld).
6
[2005] O.J. No. 6122; 28 E.T.R. (3d) 297 (Mitchell).
3
-3because he is a fiduciary or gave no value for the property, is under
an obligation to return it to the original title owner, or to the person
who did give value for it.7
When a person (the “transferor”) conveys property into the name of another (the “transferee”), or
into the joint names of both the transferor and the transferee, as noted above, it is presumed that
the transferee was intended to hold beneficial title of the property, in whole or in part, for the
transferor on a resulting trust. Unlike express trusts, the principle of resulting trusts is not
directed at the creation of the trust but at its effect.8 The term “resulting” arises from the Latin
word, resaltare, which means, “to jump back’. Accordingly, a resulting trust is the term used to
describe what happens to property or estate assets that fall under this doctrine - they “jump back”
to the transferor or his or her estate.9
The three circumstances in which the doctrine of resulting trust has traditionally been
recognized are summarized as follows:
1. Where a trustee holds property under the terms of an express
trust and the trust fails in whole or in part;
2. Where the transferor purchases property and title is taken in the
name of the transferee, or jointly, in the names of both the
transferor and the transferee; and
3. Where the transferor voluntarily and gratuitously transfers
property into the name of the transferee, or into the joint names
of the transferor and the transferee.10
7
Supra note 1 at 362.
Robert Chambers, “Resulting Trusts in Canada” (2000) 38 Alta. L. Rev. 378 at para. 16.
9
E. Gillese, M. Milczynski, The Law of Trusts (Toronto, Irwin Law, 2005) at 103.
10
Ibid at 101.
8
-4The first circumstance illustrates an automatic resulting trust. In this situation, an express trust
fails and the assumption is made that the beneficial entitlement of the trust reverts back to the
settlor on the basis that the settlor did not intend for the trustee or transferee to obtain beneficial
ownership. However, in the second and third circumstance described above, the courts have
determined that a resulting trust is to be presumed and the transferor is presumed to be
beneficially entitled to the transferred property.
In order to rebut the presumption of resulting trust, the transferee must prove that title
was received gratuitously and that a gift was intended. The onus is firmly placed on the
transferee to prove the intention of the transferor and to provide written and parol evidence,
including circumstantial evidence, to rebut the resulting trust presumption. The Supreme Court
of Canada, in the case of Goodfriend v. Goodfriend,11 articulated this point in the following
terms:
It is, of course, trite law, and has been since Dyer v. Dyer, that
where a person transfers his property into another’s name
gratuitously a resulting trust in favour of the grantor is created and
the transferee must prove, in order to retain title, that a gift was
intended by the transferor.12
Therefore, this presumption is an evidentiary presumption that may be overcome by proof that
the transferor had a contrary intention at the time of the transfer.
While the courts have applied the presumption of resulting trust, as Waters points out
“the courts have shown themselves not entirely satisfied with this presumption of a resulting
11
12
[1972] S.C.R. 640 at 646.
Ibid at 646.
-5trust”.13 While not ignoring the presumption as Waters notes, they “have been inclined to play
down the presumption by saying that they will look at the evidence (with an open mind) and,
weighing everything, determine what it was in each case that the parties intended.”14 In Neufeld
and Mitchell, the courts reviewed all of the evidence with an open mind. However, despite
inconsistencies regarding the intention of the transferor, in both cases, the court found a resulting
trust. The courts may have reached the correct conclusions but, as this paper will discuss, the
courts should perhaps have employed a different route in reaching their decisions.
C.
A REBUTTABLE PRESUMPTION
The recent case of Neufeld deals with the designation of beneficiary of an RRIF. In this
case, two brothers, Harry Neufeld (the “plaintiff”) and Siegfried Neufeld (the “defendant”)
survived their sister, Charlotte Neufeld. Charlotte named Siegfried the sole executor of her will
and named both Harry and Siegfried the residuary beneficiaries of her estate. In the weeks
leading up to her death, Charlotte added Siegfried as a joint owner on her bank account and
savings certificates and named Siegfried as the beneficiary of her RRIF. It was proven that
Charlotte was the sole contributor to the accounts and that the impetus for her to alter her affairs
was to avoid probate taxes. Following Charlotte’s death, Harry brought an action claiming that
the assets were held in a resulting trust for Charlotte’s estate. He argued that Charlotte intended
the residue of her estate to be shared equally between her brothers and that the beneficiary on the
RRIF was changed only to avoid probate tax.
13
14
Supra note 1 at 372.
Ibid.
-6Siegfried conceded, based on general principles of resulting trusts, that the joint account
and savings certificates were held on a resulting trust. Cohen J. agreed with the argument made
by Siegfried’s counsel that the law relating to joint bank accounts, was correctly stated in the
case of Re Fenton Estate15 where it was noted that:
The general rule with regard to joint bank accounts is that on the
death of one customer, the survivor is not entitled, as against the
estate of the deceased customer, to hold the funds as her own
property, if the funds were provided entirely by the deceased
customer, unless there is a presumption of gift or an intention, on
the part of the deceased customer, that the survivor shall have the
right to retain the funds as her own.16
However, Siegfried contended that there should be no presumption of a resulting trust applied in
circumstances where the transferor had designated a beneficiary on an RRIF.17
Siegfried’s counsel made the following argument in favour of Siegfried’s position:
1. In cases where a donor has made an RRIF designation a court may
find in certain circumstances that it is unconscionable to allow a party
to retain the RRIF proceeds. However, in such a case the right remedy
is the imposition of a remedial constructive trust not the application of
evidentiary presumption against the beneficiary.
2. Legislative authority has been established to create beneficiary
designations and to apply the presumption of resulting trust is to
differentiate between the way the law applies to a beneficiary
designation in a will and that made pursuant to a statute.
3. RRSP/RRIF designations are like testamentary dispositions and
thereby incorporate a level of intent on the part of the donor by the
mere making of the designation. To rule otherwise would force all
named beneficiaries to be prepared to demand that intention on the
15
(1977) 26 N.S.R. (2d) 662 [hereinafter referred to as Fenton]. Cited in Clarke v. Hambly [2002] B.C.J. No. 1672.
Ibid. at 673.
17
Supra note 8 at para 10.
16
-7part of the donor, after an impossible task. It was noted also that this
would apply to charitable beneficiaries as well as other beneficiaries.
Cohen, J, did not agree with these arguments.
In reaching his decision, Cohen J. relied upon Dredger v. Dredger18, a Manitoba Court of
Appeal case that concluded, in the circumstances of that case, that insurance and annuity
contracts were held on a resulting trust in favour of the estate. In Dredger, the deceased named
one of her adult sons as the beneficiary of her RRSP and also instructed her legal representative
to prepare a will that provided for specific bequests to her adult children and for the residue of
her estate to be held in trust for the care of her minor child.19 The intent of the deceased to
provide for her minor child was frustrated by the beneficiary designation because as a result of
the beneficiary designation, there were only sufficient assets left in the estate to maintain the
minor child for one year and nine months. The court in the Dredger case found that the RRSP
proceeds were to be held on a resulting trust for the deceased’s estate. The Manitoba Court of
Appeal stated that:
Where property is purchased in the name of another, or transferred
to another without consideration, the possibilities of a resulting
trust arise. It comes down to a question of intention on the part of
the transferor. Where the purchase or transfer is to a “stranger” it
gives rise to a rebuttable presumption of a resulting trust.20
It was argued by Siegfried’s counsel that Dredger was not good law in Ontario and cited
the case of Roberts v Martindale,21 an Ontario Court of Appeal case in support of this position.
In Roberts the deceased had intended her sister to inherit her estate. However, her former spouse
18
[1994] 10 W.W.R. 293 at para. 24 [hereinafter referred to as Dredger].
Supra note 2 at para 15.
20
Supra note 17 at para. 24.
19
-8was designated the beneficiary on a life insurance policy and after her death he claimed the
proceeds. At trial the court had found a resulting trust had been created in favour of the estate
but the Court of Appeal held instead that there was a remedial construction trust (even though
there was no fraud on the part of the ex-husband of the deceased).
In the Neufeld case, the judge noted that the Roberts case did not preclude the finding of
a resulting trust in the case of proceeds of RRSPs/RRIFs because the court came to its conclusion
not on the argument that the presumption of resulting trust was not applicable, but rather because
the court found the deceased had a mistaken belief that she had changed the beneficiary
designation to her sister. As a result, Cohen J. concluded that Dredger is still good law in
Ontario.
The 2005 Ontario Superior Court of Justice case of Mitchell dealt with a life insurance
policy and the application of the doctrine of resulting trust. In this case, the deceased changed
the designated beneficiary on his insurance policy from his estranged second wife to his three
children. One adult child was from a former marriage and the other two were minors and from
the second relationship. The wife contested the designation on a number of grounds. The court
found that the wife had paid all the premiums on the insurance contract and that the insurance
policy had been purchased in order to provide care for their children in the event of the father’s
death and determined that a presumption of a resulting trust existed and that the adult child had
not provided a sufficient rebuttal to the presumption. As a result the wife was entitled absolutely
to the insurance proceeds. 22
21
22
(1998) B.C.L.R. (3d) 63 (C.A.).
And see Wilkinson v. Wilkinson (1976), 11 O.R. (2d) 721 (Ont. C.A); and Shannon v. Shannon (1985), 50 O.R.
(2d) 456 (Ont. H.C.). In these cases, the courts found that proceeds of an insurance contract were held as a
resulting trust.
-9Discussion
As these cases demonstrate, the courts have not hesitated to apply the presumption of
resulting trust to beneficiary designations of RRIFs (and presumably also to RRSPs) and
insurance policies. While the results in these cases are likely correct, given the facts in each
case, the use of the presumption of resulting trust in these situations raises serious concerns and
questions as to whether it was necessary or desirable to invoke the presumption of resulting trust
when other remedies were available to the court.
As noted above, the court in the Neufeld case relied on the earlier case of Dredger which
stood for the proposition that the presumption of resulting trust applies to RRSP annuity and
insurance policies. In turn, the Dredger case relied heavily on the earlier case of In Re: A Policy
No 6402 of the Scottish Equitable Life Assurance Society.23 In Scottish Equitable the issue was
who was to receive the insurance proceeds when a named beneficiary predeceases the life
insured. Was it the deceased beneficiary’s estate or were the proceeds held on resulting trust by
the estate of the deceased beneficiary on resulting trust for the estate of the life insured? That
issue does not arise in Ontario (and did not arise at least in Ontario, at the time of the hearing of
the case) as Section 194(1) of the Insurance Act24 addresses that scenario and provides that if a
designated beneficiary predeceases the insured and there is not an alternate beneficiary named,
the proceeds of the life insurance devolve to the estate of the insured. Thus when Dredger was
decided in 1994, the issues discussed in Scottish Equitable were not relevant and Scottish
Equitable should have been restricted to its facts. Thus, even though Dredger, on which Neufeld
relies, does stand for the proposition in that the presumption of resulting trust applies to
23
24
(1902) 1 Ch.D. 282 (Scottish Equitable.
RSO 1990 c.I.8.
- 10 insurance and annuity contracts, one queries whether, having regard to the reliance by the court
on Scottish Equitable, it ought to have been relied on as heavily as it was in Neufeld.
In addition it is important to note that the court in Neufeld did not consider other cases
such as McLean v. Guillet25 and Vodden v. Vodden26 wherein the judge upheld the beneficiary
designations despite some circumstantial evidence that the deceased did not want the designated
beneficiary to get the proceeds of a life insurance policy
The trend exhibited by the Neufeld and Mitchell cases would appear to undermine the
laws of insurance and beneficiary designations and create confusion in an area which should be
relatively simple and straightforward both for the beneficiary and for the estate of the deceased.
The impact of these cases is that unhappy estate beneficiaries could potentially object to any
beneficiary designation and thus put the onus on the designated beneficiary to rebut the
presumption of resulting trust by seeking to prove the intention of the deceased to benefit the
designated beneficiary. In many cases this will not be possible as the only evidence available is
the beneficiary designation itself.
As the cases noted above demonstrate, it may well have been the intention of the
deceased to benefit the beneficiaries of their respective estates and thus the result reached by the
court in each case may well be the right result. However, it would have been preferable if the
court had used other doctrines such as constructive trust to reach the same result and at the same
time be less disruptive to the law of beneficiary designations.
25
26
(1978) 22 OR (2d) 175 et al.
(1983) 3 CCLI 252.
- 11 The question arises as to whether the court in the Neufeld and Mitchell cases should have
considered using the remedy of the constructive trust to achieve the same result or make a
finding of unconscionability as apply other equitable remedies. As noted above, the court in the
Roberts v. Mortimer case cited above came to its conclusion on the basis of constructive trust
remedy as did the court in the earlier case of Shannon v. Shannon.27
As noted by another author “the potential consequences of following Neufeld [and
Mitchell] are serious and could bring much uncertainty to what should be the fairly
straightforward act of a beneficiary designation, not only for the normal beneficiaries of those
designations, but for the persons who are administering estate for the deceased.”28
27
28
(1985) 12 CCLI 46 (Ont. H.C.J.).
Ann Elise Alexander, Beneficiary Designations and Resulting Trusts: a Rebuttable Presumption, Deadbeat (May
2004) Vol. 22 #4