A Quebec resident has lost a Supreme Court of Canada battle to protect a self-directed RRSP that was set up as an annuity contract. An annuity is normally protected from creditor seizure under the Quebec Civil Code, but the client’s ability to make withdrawals under the plan disqualified it from this protection, says the SCC in its decision, Bank of Nova Scotia v. Thibault, released today.

“Because exemption from seizure is an attractive feature, many financial institutions attempt to characterize their plans as being unseizable, while offering their clients a great deal of flexibility,” writes Madam Justice Marie Deschamps in a decision on behalf of a unanimous five-judge panel.

However, she writes, this case sheds light on several of the requirements that must be met under Quebec legislation for an RRSP to qualify as an annuity or trust, and therefore be exempt from seizure.

Under the constitution, each province establishes its own debtor-creditor laws. “In Quebec, investing in a life insurance policy has long been favoured by individuals as a way of sheltering assets from creditors for the benefit of their family,” writes Deschamps.

In 1987, the Quebec legislature significantly expanded the law in respect of the kinds of corporations authorized to offer potentially unseizable fixed-term annuities. The legislature provided that fixed-term annuities purchased from trust companies are exempt from seizure on the same terms and conditions as annuities obtained from insurers.

This case involves Guy Thibault, who set up a self-directed registered retirement savings plan in 1988. The terms of the contract between the Bank of Nova Scotia Trust Company and Thibault were set out in a document entitled, Declaration of Trust – Scotia Protected Self-Directed Registered Retirement Savings Plan. Under the plan, Scotia McLeod Inc. (now Scotia Capital Inc.) held the assets as the Trust Company’s agent. The trust company was described as the trustee. However, Thibault was shown as the “Registered Owner (Annuitant)” and his wife was designated as the beneficiary.

On August 5, 1999, before the plan matured, the Bank of Nova Scotia, one of Thibault’s creditors, had a writ of seizure issued against Scotia Capital. Thibault applied to the Quebec Superior Court to have the seizure quashed but his application was dismissed. He also lost on appeal.

The Superior Court dismissed his application because Thibault was authorized under the plan to make withdrawals. Since he had not “alienated his capital” the plan lost the legislative protection from seizure provided under the Quebec Civil Code for an annuity. The Quebec Appeal Court and the SCC agreed.