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Focus: Lawyers seeking changes to Substitute Decisions Act

Concerns centre on rigidity of changes to beneficiary designations
|Written By Michael McKiernan

Ontario’s rigid approach to making wills by attorneys and guardians for incapable people is preventing them from doing their job, according to many trusts and estates lawyers.

‘Preventing an attorney or guardian from making a will on behalf of an incapable person appears necessary to prevent abuses, but an absolute prohibition can be problematic,’ says Vincent De Angelis.

The Ontario Bar Association’s trusts and estates section wrote to the government in July demanding changes to the Substitute Decisions Act in order to address the “increasingly critical problem” caused by the legislation’s lack of clarity. The lawyers claim it binds guardians too tightly when it comes to the management of beneficiary designations on insurance policies, pension plans, and other financial instruments.

“Preventing an attorney or guardian from making a will on behalf of an incapable person appears necessary to prevent abuses, but an absolute prohibition can be problematic. The rule is effectively preventing actions that fulfil the intentions of the incapable person. There must be exceptions in order to protect the vulnerable person,” says Vincent De Angelis, a Markham, Ont., estates lawyer who chairs the OBA section’s statutory review subcommittee.

“With our aging society in Ontario, people increasingly require substitute decision-makers. We need a tailored regime with the flexibility to address the different circumstances that can arise,” he adds.

The problem arises because the act empowers substitute decision-makers to do anything with respect to property that the incapable person would do except make a will. The legislation defines a will as including a testament, a codicil, an appointment by will, and “any other testamentary disposition.”

However, the act is silent on whether designation of a beneficiary constitutes a “testamentary disposition” and while the case law on the question is unsettled, De Angelis says the prevailing attitude of the courts has been restrictive.

“The uncertainty there has led to conflicting policies from different financial institutions on whether an attorney or guardian can make a valid designation,” says De Angelis.

Ian Hull, co-founder of Toronto’s Hull & Hull LLP, says everyone would benefit from clear guidance in the act.

“I think we’re entitled to more certainty. If designation of a beneficiary cannot be done by an attorney or guardian, that’s fine, but say it in the legislation. Otherwise, what happens is you get into the whole debate and waste time getting a judicial determination,” he says.

Still, Hull says an all-out ban makes little sense since there are times when changes to the beneficiary designation are clearly in the interests of the incapable person. The OBA submission outlines three specific examples.

When an attorney takes over and completes a divorce proceeding started by the person before becoming incapable, gifts to the former spouse in the will are automatically revoked but beneficiary designations are not. If the attorney can’t change the designation, “the former spouse will continue to benefit simply as a result of the individual’s resulting incapacity,” reads the OBA submission.

Another anomaly arises when it becomes necessary to switch an RRSP or other plan between financial institutions. If the substitute decision-maker can’t designate a new beneficiary, the proceeds could revert back to the incapable person’s estate. “As a result, the proceeds may benefit persons whom the incapable person did not intend, thereby defeating his or her estate plan (and any tax planning undertaken with respect to the same) and increasing the potential for litigation,” says the OBA submission.

Thirdly, the same problem comes up when RRSPs convert to registered retirement income funds following a person’s 71st birthday.

“Really, it’s just silly. The rollover was forced because they reached an arbitrary age, so it obviously isn’t an abuse of power to name the same beneficiary that was there before. It’s the thing they would have done logically if they were capable,” says Jasmine Sweatman, an estates lawyer based in Oakville, Ont.

The OBA submission advises the government to amend the act by inserting a new subsection that would allow guardians and attorneys to “make, change or revoke a beneficiary designation” only in limited circumstances.

In the case of transferred or converted RRSPs or similar plans, the amendments would only allow for the designation of identical beneficiaries to the old plans. Substitute decision-makers would have to get a court order approving any changes to designations, such as in the divorce cases highlighted by the OBA.

De Angelis says the OBA’s incremental approach increases the substitute decision-maker’s ability to protect the incapable person without adding to the risk of abuse by guardians and attorneys.

“Beyond this, it wouldn’t be wise in my view to give more will-making powers to attorneys. You need to have that general prohibition because there’s always a potential for abuse and fraud,” he says.

However, Sweatman says the introduction of exceptions could open up a debate on greater will-making powers for attorneys.

“The OBA has focused on fairly narrow issues. It starts off with the easy ones, but you could be on a bit of a slippery slope. You’d have to leave it in the judge’s discretion and it would always depend on the circumstances. I’m not sure how much judges want to take that on.”

  • Donald Duncan
    This change is long-overdue - both because of the stated issues, and the fact that, in some cases, attorneys have made improper designations and then argued that they have the authority.

    The same issue arises under the Insurance Act as under the Succession Law Reform Act with respect to beneficiary designations.

    In addition to designating the 'same' beneficiaries, there are cases where financial institutions have no record of a beneficiary designation - it should be possible, where no beneficiary has been designated, to designate a beneficiary that is consistent with the provisions of the incapable's will (or the laws of intestate succession, if the incapable person has no will) - usually, of course, the residual beneficiaries, or alternately, a trustee to carry out the provisions of the will where the plan proceeds are needed to pay debts.
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