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Reducing a Surviving Spouse’s Preferential Share on a Partial Intestacy

Canadian common law intestacy statutes all grant the surviving spouse a preferential share out of the deceased spouse’s net estate. The amount of the preferential share varies from province to province. In addition, the surviving spouse is entitled a distributive share that varies with the number of surviving issue, although in some provinces, if all the issue are the issue of the deceased and the surviving spouse, the latter takes all. In the western provinces and the territories “spouse” includes a person who is married to the deceased and a person with whom the deceased lived in a marriage-like or adult interdependent relationship. The statutes in those provinces make varying provisions for who is entitled when a person is survived by both a spouse and one or more common law spouses, but I am not concerned with those provisions in this blog.[1]

If a person dies with a will, but the will does not dispose of all his property, he dies partially intestate. In that case some of the statutes provide for a reduction in the amount of the preferential share to the extent of any gifts made in the will to the surviving spouse. The meaning of that provision became an issue in the recent case, Grassing v. Riley.[2]

Mr. Grassing died intestate, survived by his common-law partner, Ms. Riley, and his two sons from a prior relationship. The intestate did not leave a will, but by instruments made under his Registered Retirement Income Fund (“RRIF”) and his Tax Free Savings Account (“TFSA”), he had named Ms. Riley as his designated beneficiary. The sons made an application for advice and directions about whether Ms. Riley’s preferential share should be reduced by the value of the benefits she received as designated beneficiary. Section 2 of the Intestate Succession Act[3] provides in part:

(3) If an intestate dies leaving a surviving spouse or common-law partner and issue, and one or more of the issue are not also issue of the surviving spouse or common-law partner, the share of the surviving spouse or common-law partner is

(a) $50,000., or one-half of the intestate estate, whichever is greater; and

(b) one-half of any remainder of the intestate estate after allocation of the share provided by clause (a).

(4) The maximum entitlement set out in clause (3)(a) shall be reduced by an amount equal to the value of any benefits received by the surviving spouse or common-law partner under a will of the deceased.

Of course, the beneficiary designations were not a will in the traditional meaning of that word, but s. 1 of the Manitoba Wills Act,[4] in common with most other wills statutes, defines “will” to include: “a testament, a codicil, an appointment by will or by writing in the nature of a will in exercise of a power and any other testamentary disposition”. The sons therefore argued that each of the beneficiary designations was a testamentary disposition and therefore a “will”. They conceded that the designations were not executed with the formalities prescribed in the Act for a traditional will. However, they argued, that does not matter, since the court can recognize a document as a will under its dispensing or validating power in s. 23 of the Act if satisfied that it embodies the deceased’s testamentary intentions.

Ms. Riley argued per contra that the benefits she received were not benefits received under any will of the deceased, but rather pursuant to “instruments” made under the Beneficiary Designation Act (Retirement, Savings and Other Plans) (“BDA”).[5] Section 2 of that Act draws a distinction between a designation by “instrument signed by the participant” of a plan and a designation under the participant’s will and therefore the RRIF and TFSA documents cannot be both.

Perlmutter A.C.J.Q.B. agreed with Ms. Riley’s position. Since the Legislature is presumed to know existing law, it must have been aware that benefits payable under a plan on the death of a participant constitute a testamentary disposition. But in the BDA it provides for different ways in which a designation may be made, namely by “instrument” or by “will”, so those two words must perforce have different meanings. That is clear from the fact that ss. 2-12 of the BDA make different provisions for the making and revocation of designations by instrument and by will. Thus, for example, s. 4 of the BDA provides in part: “… a revocation in a will of a designation made by instrument …”, thereby indicating that the two words have different meanings. Hence, as the Associate Chief Justice opined, if the Legislature had intended that the preferential share of a surviving spouse should be reduced by benefits received under instruments signed by the deceased spouse, the ISA would have said so.

Accordingly, the Associate Chief Justice held that Ms. Riley’s preferential share should not be reduced by the value of the benefits she received under the RRIF and the TFSA.

Quaere what the result would have been if the deceased had made the designations in a will (which did not dispose of all his property). The issue did not arise in the case, but in my opinion the result should have been the same. As is clear from s. 7 of the BDA and s. 52(4) of Ontario’s Succession Law Reform Act,[6] a beneficiary designation has an independent existence from the will. Thus, whether the designation is made by instrument or by will the preferential share should not be reduced by its value.

In my opinion the actual decision is correct. It is actually a very straightforward exercise in statutory interpretation. But it does highlight the problem that we have in our law with beneficiary designations. We treat them as testamentary dispositions, but when necessary we hold that they are not real wills. We could do with more clarity in this area of the law. British Columbia addressed the definition of “will” in the Wills, Estates and Succession Act.[7] Section 1(1) contains the following definitions:

“testamentary instrument” means a will or designation or a document naming a person to receive a payment or series of payments on death under a plan or arrangement of a type similar to a benefit plan;

“will” means

(a)    a will,

(b)   a testament,

(c)    a codicil,

(d) an appointment by will or by writing in the nature of a will in exercise of a power,

(e)  anything ordered to be effective as a will under section 58 [court order curing deficiencies], or

(f)    any other testamentary disposition except the following:

(i)  a designation under Part 5 [Benefit Plans];

(ii) a designation of a beneficiary under Part 3 [Life Insurance] or Part 4 [Accident and Sickness Insurance] of the Insurance Act;

(iii) a testamentary disposition governed specifically by another enactment or law of British Columbia or of another jurisdiction in or outside Canada.

Thus, under this legislation a beneficiary designation, although it is a testamentary instrument, is not a will.

Ontario readers will notice that the Manitoba ISA provisions about reducing the surviving spouse’s share are very similar to s. 45(3) of the Ontario Succession Law Reform Act (except that Ontario does not make provision for a common law spouse). Also, Manitoba’s BDA provisions are very similar to ss. 51 and 52 of the Succession Law Reform Act. Consequently, the decision in Grassing v. Riley is likely to be applied in Ontario if the issue should arise there.

The decision in Grassing v. Riley meant that the court did not have to address a supplementary issue raised by Ms. Riley. She posed the following question: if the preferential share should be reduced by the benefits received under the deceased’s RRIF and TFSA should the reduction take into account the tax liability Ms. Riley will incur when she withdraws funds from the RRIF. Nonetheless, Associate Chief Justice Perlmutter decided to assess the amount of the reduction in case he should be reversed. This part of the judgment is therefore dictum, but it is an important issue and therefore worth considering.

Ms. Riley filed affidavit evidence from a chartered professional accountant, which gave a maximum and minimum figure for the potential tax liability. The applicants did not file any evidence on the issue and did not cross examine the CPA. But they did argue that the tax liability should not be taken into account. Associate Chief Justice Perlmutter disagreed with that argument, took the mid-point between the two figures and held that if the income tax liability should be taken into account, the value of the benefits received by Ms. Riley under the RRIF should be reduced by that figure. Of course, there would be no tax liability for withdrawals from the TFSA.

The court awarded costs against the applicants, since the public policy considerations that support an order for costs to be paid from the estate did not apply. Thus, it applied the normal rule that costs follow the event.

[1]    For a discussion of them, see Oosterhoff on Wills, 8th ed. by Albert H. Oosterhoff, C. David Freedman, Mitchell McInnes, and Adam Parachin (Toronto: Thomson Reuters/Carswell, 2016), §3.3.2. The 9th edition is to be published in 2021.

[2]    2020 MBQB 34.

[3]    C.C.S.M. c. I85.

[4]      C.C.S.M. c. W150.

[5]    C.C.S.M. c. B30.

[6]    R.S.O. 1990, c. S.26.

[7]    S.B.C. 2009, c. 13, s. 1(1)

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