There is a specific statutory exception for insurance policies and proceeds; joint property passes to the surviving joint tenant upon death. What happens to proceeds from an RSP devolving on the death of a debtor to the debtor’s spouse? Can the creditors claim these proceeds? This was the issue that was decided in Amherst Crane Rentals Ltd. v. Perring, a 2004 decision of the Ontario Court of Appeal.
Debt
The creditor obtained a judgment against Perring’s corporation for breach of a deemed trust. The creditor, who was the corporation’s subcontractor, also obtained judgment against Perring. Perring was the sole director and officer of his corporation and, accordingly, under the Construction Lien Act was personally liable for the corporation’s breach of the deemed trust.
Perring was not a bad man; rather, he was an unfortunate man who was caught up in the woes of the construction industry in the early to mid 1990s. It is very easy to be in breach of a trust under the Construction Lien Act. A job goes sour, the corporation loses money, there is overhead to pay, and when money is received from a construction project, it is insufficient to pay all of the overhead and past corporate debts plus all of the subcontractors on the job. Very few construction owners can see the writing on the wall and voluntarily give up their businesses when economic conditions falter; they feel that if they can just get one more good project, all will be well again.
As it happened, we knew Perring and we had worked with him on other matters. We were not, however, involved in this litigation.
Beneficiary
Perring died in 1998. He looked after his spouse. He had a number of insurance policies and an RSP in which his spouse was the named beneficiary.
Perring’s estate was unable to pay all of its debts, in particular Perring’s debt to the creditor. Accordingly, the creditor claimed that the proceeds of the RSP formed part of Perring’s estate and therefore should be used to pay Perring’s debts rather than be paid to the spouse.
The spouse politely, or not so politely, declined the creditor’s request to pay the money in the RSP to the estate, cashed the RSP, paid the tax, and pocketed the net proceeds of $82,000. The creditor sued.
Issues
The creditor argued that:
1. Notwithstanding that a debtor designates a specific beneficiary for the RSP in the event of the debtor’s death, the proceeds of the RSP devolve directly to the debtor’s estate and are paid to the beneficiary only after the debts of the estate are satisfied.
2. Even if the proceeds devolve directly to the beneficiary, the unpaid creditors of the estate have a claim against the beneficiary for the RSP proceeds.
Direct Devolution
The creditor relied on section 2(1) of the Estates Administration Act. It states that all property that is vested in a person without a right of another to take by survivorship vests in that person’s personal representative on death. The court, however, noted that section 53 of the Succession Law Reform Act states that where a person in a plan has designated another person to receive the benefit under the plan on death, the plan’s administrator must pay the benefit to the designated beneficiary.
The court held that the Succession Law Reform Act was a complete answer and that it excluded the RSP proceeds from the grasp of all creditors once there was a designated beneficiary.
No Claim
The court then decided that once the front door was shut to the creditor, it could not enter through the back door. The creditor had no security interest against the proceeds once the proceeds devolved to the beneficiary. The court felt that there was little difference in an RSP situation and a jointly-held property situation. Just as the interest of the debtor in the jointly held property devolves directly to the other joint tenant outside of the estate, so do the proceeds of the RSP.
The court also felt that the equities did not favour the creditor. The court noted that RSP “beneficiaries are often spouses and therefore not volunteers in the traditional sense, but partners in life who have provided support to their spouses with the expectation that they will be supported after the death of their spouses.”
Action
The moral to a creditor is easy. Speed is essential. It is essential to ensure that jointly-held property does not devolve once the debtor dies and to ensure that the RSP proceeds do not devolve once the debtor dies. In each case, if a creditor seizes the property during the debtor’s lifetime, the designation is irrelevant. There will no longer be any property or RSP proceeds to be passed on to the joint owners or RSP beneficiaries.
Postscript
Ashley Perring did not die of natural causes. He committed suicide. We assume that his financial problems and his desire to help his family may have had something to do with his decision.