When a person dies their RRSPs and RIFs (Registered Plans) are taxed as income to the deceased in the year of their death. The taxes payable can often be 40 to 50 percent of the amount held in the Registered Plans. The deceased’s estate pays the tax and the person(s) named as beneficiary of the Registered Plans receives the entire pre-tax amount of the Registered Plans.
In a decision in Alberta, Morrison v. Morrison (2015) ABQB 769, the court found a way to remedy this unfairness by imposing a Constructive Trust and stated that the beneficiary of the Registered Plan was required to reimburse the estate for the amount of the tax because the beneficiary was “unjustly enriched” leaving the estate to pay the tax on a non-estate asset.
Constructive Trusts will only be imposed however if a person can be shown to be unjustly enriched by the gift they have received. This will require evidence of the intention of the will-maker and the circumstances of the beneficiary. Was the will-maker aware when they made their will that the Registered Plan would be taxed in the estate and the beneficiary would receive the entire pre-tax amount ?
As a result of this court decision it would be prudent for will-makers to state in their wills who they intend to pay the tax on their Registered Plans. For example their will could confirm that they have named a person the beneficiary of their Registered Plan and that their intention is that that person would or would not be required to reimburse their estate for any tax which is payable on the will-maker’s death from the Registered Plans.
Deborah A. Todd
