The Supreme Court of Canada Thursday denied leave to appeal a precedent-setting Ontario Court of Appeal decision, which extended protection from creditors to an RRSP planholder’s beneficiary.

For advisors, preserving the Ontario Court of Appeal decision increases the importance of ensuring that clients name RRSP beneficiaries. If the the designation is not made, the funds will go to the estate, and not receive protection from creditors. That could result in lawsuits against advisors from potential beneficiaries.

The OCA decision, known as Amherst Crane Rentals Limited v. Perring, is now expected to be followed by other courts throughout the country.

The OCA based its decision partly on Ontario’s Succession Law Reform Act, which states that a person designated as the beneficiary of a plan “may enforce payment of the benefit payable to him.” Several provinces, including Alberta, Manitoba, New Brunswick, Nova Scotia and Newfoundland and Labrador, have similar statutory provisions governing succession.

Since the Amherst Crane decision has not been successfully appealed, courts in other provinces are expected to follow the lead set by the OCA, and extend protection to RRSP proceeds passed on to a designated beneficiary.

The Amherst Crane case involved the estate of Ashley Perring, who died in April 1998 and made his wife the sole beneficiary of his estate. That included making her the beneficiary of two RRSPs. She received those proceeds in May 1998.

Meanwhile, the estate filed for bankruptcy in 1999, and the bankruptcy trustee demanded that Mrs. Perring pay the RRSP proceeds into the estate. She refused. The OCA agreed with the trial court decision that the RRSP proceeds went straight to Mrs. Perring in her capacity as beneficiary – not to the deceased’s estate. Therefore, the creditors could not claim a security interest in the proceeds.

Both Ontario courts compared the RRSP proceeds to life insurance benefits that pass to a surviving spouse. Traditionally, they have been given legal protection from creditors. “Both RRSPs and life insurance are used by people to provide security for dependent spouses following their death,” noted the OCA in its decision.