TFSA benefits for low income | Page 2 | Tax Free Savings Accounts | Discussion forum

Doug said
I would think any court ruling that said probate was required to disburse assets with a "named beneficiary" in an RRSP, RRIF or TFSA will, ultimately, be overturned by higher courts. It's pretty "crystal clear" to me that these assets are specifically excluded from the deceased's Estate. That's certainly my understanding and the understanding of many minds sharper than my own. 🙂

That's not quite correct.

Financial institution can disburse. But, doing so without direction from an executor appointed by a probated will does not legally satisfy what the financial institution owes the deceased account holder.

Beneficiary designations on RRSP, RRIF, TFSA, and life insurance can be revoked by a subsequent will. Earlier thread explored this in some detail. Real cases where account/life insurance with beneficiary designations were revoked by a subsequent will were Ashton Estate v South Muskoka Memorial Hospital Foundation in Ontario and Reimer (Dierk Estate) v. Smithgall & Kent in British Columbia.

…. It's all about knowing the client, knowing the Executor, who would still bear some, if not most, of any liability for an improper disbursement without probate, would they not? There's a lot of liability to being an Executor people do not realize, especially income tax liability if the "tax man" doesn't get what "he" is owed. 😉

Executor appointed by an unprobated will has no legal authority to bind the estate. Financial institution would be fully liable to the rightful heir or to creditors just as if it accepted direction from an unauthorized person.

The unprobated will may not be last will of the deceased.

The unprobated will may no longer be valid. There was a case in southwestern Ontario. Unknown to the heirs, their father remarried a year before he died. The marriage revoked the will executed years before. 

I suppose that, if you knew you were dying, and your beneficiary was not a spouse, it would make sense to just cash in the TFSA and put it in a joint account with the beneficiary.

Norman1, a spouse or common law partner can be a designated beneficiary, i.e. the balance on death can be rolled into their TFSA on top of their own contribution limits. Otherwise, you can leave your TFSA assets to whoever you want and they can do what they want with the money - it has no impact on their TFSA, they can put all or some into their TFSA only if they have the room.

The joint account with an adult child doesn't automatically bypass the estate.

Apparently, there is a Supreme Court case Pecore v. Pecore that says that when a parent has a joint account with an adult child, there is (from The Trouble With Joint Bank Accounts)

… a presumption of "resulting trust" upon the death of the parent. What that means is that the asset will revert back to the estate of the parent instead of passing to the adult child. This often comes as a surprise to people who are familiar with jointly-held assets passing to the surviving party by right of survivorship.

Norman1, important point you make: there is a distinction between the process of probate, i.e. verifying the validity of a will (which is what financial institutions are interested in before they allow access by an executor to the deceased's estate's assets), with what is or isn't subject to provincial probate fees/taxes.

In Ontario, I believe as long as you have named a successor holder or a beneficiary for your TFSA then the assets bypass the estate for purposes of calculating probate taxes, i.e. no Ontario probate taxes on TFSA value. I don't know about other provinces.

Interesting point you make also about joint accounts, though it's also a CRA view that assets in joint accounts are still attributable back to the person that contributed the assets to the account, notwithstanding there may be two or more holders of the account who have access to it.

My elderly parents added me as a joint holder to all their accounts only to avoid the need for POAs, as I can do their banking while they're in hospital or unable otherwise (e.g. dementia) to do so. In no way do any of us regard this as a transfer of assets to me, it's just so the assets are still accessible for deployment on their behalf if they are unable. I'm no expert on this but it seems to be working as planned.

Loonie said

… I think that may be why it took a while for all the provinces to get on board with the beneficiary designation. Perhaps they had to adjust their probate laws. I recall that there was a delay between the federal legislation and the ability of the FIs to offer beneficiary forms and that the provinces had to do this individually.

Property and probate are provincial matters. If one wish to have a joint account with a cat, then provincial property laws would have to be updated!

Perhaps the reason they still use the beneficiary forms in spite of their concern about wills is because this is a legal requirement in order to avoid probate fees?

I think it is a service to us clients. Provinces probably allow them for people who don't have a will yet. Most provinces allow account beneficiary designations on RRSP, RIF, and TFSA. I think Québec is the one that does not.

I don't think financial institutions are too worried about wills. They know to watch out for the possibility of a beneficiary change in a will that's executed after the beneficiary designation on the account.

I had a look at the 2007 Supreme Court case Pecore v. Pecore.

It wasn't the daughter's siblings that brought on the dispute. It was actually the daughter's ex-husband M during the subsequent divorce proceedings!

An ageing father gratuitously placed the bulk of his assets in joint accounts with his daughter P, who was the closest to him of his three adult children. Unlike her siblings, who were financially secure, P worked at various low‑paying jobs and took care of her quadriplegic husband, M. P’s father helped P and her family financially, including buying them a van, making improvements to their home, and assisting her son while he was attending university. P’s father alone deposited funds into the joint accounts. He continued to use and control the accounts, and declared and paid all the taxes on the income made from the assets in the accounts. In his will, P’s father left specific bequests to P, M and her children but did not mention the accounts. The residue of the estate was to be divided equally between P and M. Upon the father’s death, P redeemed the balance in the joint accounts on the basis of a right of survivorship. P and M later divorced, and a dispute over the accounts arose during their matrimonial property proceedings. M claimed that P held the balance in the accounts in trust for the benefit of her father’s estate and, consequently, the assets formed part of the residue and should be distributed according to the will [equally to him and P instead of being a gift to P during their marriage that is not subject to matrimonial division].

All the way to the Supreme Court. The ex was motivated as "assets in the joint accounts in dispute totalled almost $1,000,000 at the time Paula’s father died…."

Norman1, for the record there is zero chance I will "develop selective memory loss" about this after my parents are gone. It's one of the reasons they chose me to be added to their accounts. But you're right: from what I've seen over the decades, partly in my lines of work, it's generally a very good idea to be extremely judicious when you hold joint ownership of assets with someone. Especially family, what with the sibling, marital and other jealousies added to the mix.

Loonie said
To save everyone the bother of reading the entire case... the daughter won. The joint account was deemed to be hers alone following her father's death, but the legal costs no doubt took a big chunk out of it.  

I'm not sure the her legal costs, in the end, were that much of the almost $1 million.

For the original Ontario Superior Court trial, the judge denied both her and her ex-husband costs because of "candour" issues with both of them:

1. She was executrix of her father's estate and apparently did not tell her ex about the specific bequests her father made in the will to the ex.
2. Ex-husband claimed in the trial that her father told him he would be inheriting about $350,000. Judge politely called him a liar:
   

   41. … Furthermore, it is highly unlikely that [the father] would have failed to indicate his intention to [the lawyer about to update the will] that he intended the plaintiff [her ex-husband] to receive about $350,000.00 from his estate after his death. Accordingly, I reject the Plaintiff’s evidence on this issue. Furthermore, I find his evidence on this very important issue so incredible that I must reject any of his evidence that is inconsistent with the evidence of any other witness.

In the Ontario Court of Appeal, the judges awarded her $17,000 for costs in responding to the unsuccessful appeal from her ex.

Supreme Court judges awarded her costs for responding to the ex's unsuccessful appeal in the Supreme Court.