IIAC fears B.C. estates law will have unintended consequences

However, in a letter to the province’s deputy attorney general, Richard Fyfe, the IIAC is asking that a couple of its provisions be delayed, as they appear to clash with investment industry rules, practices, and possibly even tax laws, for registered accounts.

The trade group has asked that the government defer the enforcing of irrevocable beneficiary provisions (sections 87 and 88) of the new law “to allow for discussion of the difficulties and unintended consequences for British Columbians saving and investing in registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), tax-free savings accounts (TFSAs) and other registered plans.” The IIAC estimates that investment dealer clients in B.C. have about $40 billion in RRSPs, RRIFs, TFSAs and other similar plans.

In particular, the letter indicates that the IIAC is concerned about provisions that aim to harmonize the treatment of beneficiary designations made under retirement plans with the treatment for insurance policies, in an effort to simplify estate planning. It’s concerned that this would allow “irrevocable beneficiary designations” on the basis that this is how insurance policies are treated.

The IIAC says that while it “strongly support[s] making estate-related provisions simpler in light of an aging population”, it warns that “the irrevocable beneficiary designation provisions unfortunately create more complexity and uncertainty than they may address within B.C. and across jurisdictions.”

It argues that imposing irrevocable beneficiary designations on registered plans held at investment dealers creates a new set of “practical issues that would likely have negative effects on certainty and cost for investors, and for those that might expect to benefit from the new rule.”

For example, it notes that irrevocable beneficiary designations will clash with dealers’ know your client (KYC) and suitability obligations. “Investment dealers and their advisors must act for their client, and in many, if not most cases, the irrevocable beneficiary will not, in fact, be their client as well,” it says.

Yet, under the new law, it says, “the client planholder may: lose control over his or her holdings during the plan’s life, have limited investment options, and have little or no ability to transfer or withdraw money.”

Additionally, the new provisions may also clash with account transfer rules and procedures in the investment industry, it says; and it may conflict with tax rules for registered plans. “Of particular note, TFSAs must operate to the “exclusive benefit” of the holder and if a beneficiary’s consent were required for transactions, we understand that one interpretation is that the TFSA could be deregistered,” it says.

The IIAC suggests that the provisions in question — sections 87 and 88 — “could safely be severed from those parts of the Act that come into force [today]”; which would give the industry and the government the opportunity to reconsider these issues.