A beneficiary designation is a simple, informal way to pass certain types of benefits to a beneficiary outside one’s estate. Part 5 of WESA expands the kinds of benefit plans that can be dealt with by beneficiary designation and introduces new rules about how designations operate.
To say Part 5 is dry reading is an understatement, but the changes are significant. Executors, administrators and beneficiaries should be aware of the issues and implications and where necessary the lawyers who advise them should make appropriate adjustments to how they practice.
Definitions & Interpretation
Section 1 of WESA contains the definitions of key terms used in Part 5. The most important definition is “benefit plan”, which includes:
(a) any one or more of the following for the benefit of employees or former employees of an employer, agents or former agents of an employer, the dependants of any of them or a designated beneficiary:
(i) a pension plan or retirement plan;
(ii) a welfare fund or profit-sharing fund;
(iii) a trust, scheme, contract or arrangement,
(b) a fund, trust, scheme, contract or arrangement for the payment of an annuity for life or for a fixed or variable term,
(c) a retirement savings plan or retirement income fund registered under the Income Tax Act (Canada),
(d) a fund, trust, scheme, contract or arrangement described in the regulations made under this Act, or
(e) a tax-free savings account within the meaning of the Income Tax Act (Canada) ….
Application of Part 5
Part 5 applies whether or not a benefit plan gives a participant the right to make a designation [s. 84]. Plan administrators must accept beneficiary designations even if their plan does not provide for this, including multiple beneficiaries, alternate beneficiaries and irrevocable designations. Part 5 does not apply to life and disability insurance, which are governed by the Insurance Act. If anything in Part 5 conflicts with other provincial or federal enactments, the other enactments prevail.
Designation of Beneficiaries
Beneficiary designations can be made either in a will or outside it in a separate, less formal document.
Designation Outside Will
A designation must be in writing, signed and identify the benefit (generally or specifically) and beneficiary(s). There is no requirement for a witness. The signature can be that of the participant or another person in the presence of the participant, at their direction.
Query whether a designation in an email satisfies these requirements. Email has been found to be effective to satisfy the requirement under the Limitation Act that an acknowledgment of debt be in writing and signed by the maker. See Re Yehia, 2012 BCSC 1129 (41-46), Gabriel Estate v. Ward, 2011 BCSC 1129 (58), Fleisher Ridout Partnership Inc. v. Tai Foong International Ltd.,  O.J. No. 4229 (8-14).
Designation In Will
A designation can be made in a will but is only effective if it expressly refers to a benefits plan, generally or specifically. A residue clause cannot do this inadvertently. A designation in a will can be changed by subsequent designation outside the will. If the will is revoked, so is any designation in it. If a revoked will is revived by codicil, a designation in it will not be revived unless the codicil provides for this. A designation in a purported will may be effective even if the will was not effectively executed.
A participant can create an irrevocable designation that cannot be changed without the beneficiary’s consent while the beneficiary is alive. This is an important tool for creating certainty – useful, for example, in conjunction with a separation agreement, for spousal or child support arrangements or for estate planning in a blended family.
To make a designation irrevocable, the participant must, during their lifetime, file the irrevocable designation with the office in Canada specified by the benefits plan administrator. If they fail to do so, it only takes effect as a revocable designation. Irrevocable designations cannot be made by will. If one attempts to do so, it only takes effect as a revocable designation.
Maintaining Previous Designations
A participant’s nominee (someone with power of attorney, representative under a representation agreement or committee) can make the same designation of beneficiary when a plan or instrument is renewed, replaced or converted [s. 90]. This allows a nominee to give continued effect to a participant’s beneficiary intention despite changes to plans/ instruments.
Given there is a power to maintain designations, query whether a nominee has a positive duty to do so. As a fiduciary in control of another’s financial affairs, arguably there is a duty to try to preserve the participant’s designation intentions.
Note there is a line of “disappointed beneficiary” authority where a lawyer hired to create a will has been found to owe a duty of care to intended beneficiaries. See Whittingham v. Crease & Company,  5 W.W.R. 45 (BCSC). Similar principles might be applied here.
Safe practice is a nominee to inform himself whether plans /instruments they are dealing with have beneficiary designations and if so, try to preserve them. Lawyers who advise nominees should warn clients about this issue.
Designated Beneficiary Pre-Deceasing Participant
If a beneficiary predeceases a participant and there are no other beneficiaries provided for in the designation, the benefit passes to the participant’s estate [s. 91].
It is incumbent on executors, administrators, beneficiaries and others potentially interested to investigate whether there are plans/ instruments with designations and whether named beneficiaries predeceased.
Safe practice is for lawyers who advise executors, administrators, beneficiaries and others potentially interested to warn clients about this issue and in appropriate cases initiate necessary inquiries.
Trustee for Designated Beneficiary
A participant can appoint, alter or revoke the appointment of a trustee for their beneficiaries [s. 92]. This is useful when beneficiaries are minors, incapable adults or if there is some other reason a participant does not want benefits paid directly. It is good practice to send notice of appointment of trustee to plan administrators at the time the appointment is designated.
Enforcing Payment of Benefit
Beneficiaries can enforce payment of a benefit despite there being no “privity of contract” between them and the benefit plan [s. 93].
Administrator Transferring Benefit
If a plan administrator transfers a benefit in accordance with the benefit plan to a designated beneficiary, they are discharged in respect of that benefit even if they later receive notice of a change of designated beneficiary [s. 94].
This highlights the importance of sending timely notice of new designations to plan administrators.
After a participant dies, executors, administrators, beneficiaries and others interested should promptly inquire what plans/ instruments have designations, who is named designated beneficiary in plan administrators’ records, whether the participant subsequently changed the designation and whether designated beneficiaries predeceased.
An issue to be determined is whether a subsequently named beneficiary or participant’s estate can claim directly against someone who received a benefit from a plan administrator based on outdated plan records. Section 93 appears broad enough to support such a claim.
Lawyers, participants, executors, administrators, beneficiaries and others should all be aware of the implications of Part 5 of WESA and the increased level of care and vigilance the new provisions demand. Proper attention to the new provisions can have a significant impact on where plan benefits end up being paid.
-John W. Bilawich