Estate planning in a time of crisis leads to miscommunication and wishes not being followed

Key learnings:

• Ensure that your estate plan is up to date before misfortune strikes. Estate planning at a time of personal crisis is difficult and prone to error.
• Review your will and estate plan with your executor, lawyer and investment advisor to ensure your instructions are clear and can be acted on. Estate planning is most effective when all parties know and understand their roles and responsibilities.

In 2014, Mr. M was gravely ill. At the time, most of his assets were held in a sizeable RRIF account, with his three sons designated as beneficiaries. His existing will provided that each of his three adult sons would receive an equal share of his estate outright, but this no longer matched his wishes because he felt that two of his sons were not capable of responsibly managing a sizeable inheritance.

To get his affairs in order, he met with his investment advisor and discussed how he would like his estate to be divided after he passed. Mr. M told his advisor that he still wished to give each son an equal share of his RRIF account but didn’t want the payment to be made in a lump sum, especially to his two less responsible sons. 

Estate plan is developed with investment advisor and lawyer

Mr. M and his advisor discussed that it was possible to create a trust in his will that would pay each son his inheritance gradually over time. To accomplish this, Mr. M’s advisor recommended that Mr. M speak to a lawyer and update his will so his wishes were clear and could be easily carried out.

Mr. M’s investment advisor then wrote a letter to Mr. M’s lawyer. In the letter, he informed the lawyer that Mr. M wanted to create a trust in his will and explained the terms of the trust that he and Mr. M had discussed. The investment advisor also said in his letter that he had not revoked the RRIF beneficiary designations. Mr. M then met with the lawyer and signed his new will, which included the trust for his sons. 

The executor attempts to act on the will

In early 2015, Mr. M passed away. One of his sons, who was the executor of his will, notified Mr. M’s investment advisor. The executor instructed the firm to close Mr. M’s accounts and send the assets to him so that he could hold them in trust in accordance with the terms of Mr. M’s will.

However, the firm’s records showed that the beneficiaries of Mr. M’s RRIF account were still his three sons. According to the beneficiary designation, the RRIF was supposed to be paid out in equal shares to each of the sons, and so would not be included in the assets that went to the executor under Mr. M’s will. The executor feared that his two brothers would squander their inheritance.

Unfortunately, the new will had not included a provision that would override the beneficiary designation of the RRIF and Mr. M did not revoke the beneficiary designation during his lifetime. This meant that the firm was required to act according to the designation, and so the firm sold all the investments in the RRIF and dispersed the proceeds equally among Mr. M’s sons.

The executor believed that Mr. M had taken the correct measures to revoke the beneficiaries on his RRSP and brought his complaint to OBSI.

What did OBSI do?

When we investigated, we did not find any evidence that anyone had taken the steps necessary for Mr. M to revoke the designation. There was a record that the investment advisor had informed the lawyer that Mr. M had not revoked the beneficiaries. The implication was that the advisor thought that Mr. M’s lawyer would draft the will to override the beneficiary designations. It made sense that the advisor would not revoke the designation before a new will was actually signed by Mr. M. The lawyer recalled that he was under the impression that the firm would change the beneficiary designation from the three sons to Mr. M’s estate. It is possible that the lawyer told Mr. M that he should give this instruction to the firm. There was no record that Mr. M ever gave instructions to the firm to change the designation prior to his death. Unfortunately, Mr. M’s will and beneficiary designations did not work together due to miscommunication between him, his advisor and his lawyer. 

Our recommendation

While Mr. M’s wish that his assets be distributed to his sons over time was not complied with, we did not have a basis to recommend that the firm give the assets to the executor because they were legally required to follow the designation that was in place when Mr. M died. No compensation was recommended.