Asset Protection – How to get it right

By Andrew Rogerson LLB (Hons) TEP

The way to avoid asset protection settlements being set aside, is to plan well in advance and structure them for bona fide purposes unconnected to asset protection. This is so, even if asset protection is an inevitable and beneficial consequence of the transaction.

The settlement should be made at a time when the settlor is clearly not insolvent or on the eve of insolvency. Moreover, as indicated above, intent is very important. The settlement must be justifiable in terms of non asset-protection objectives. Thus, in the case of Ramgotra (1996) the Supreme Court of Canada held that the settlement of funds transferred from non exempt RRSP’s into an RRIF managed by an insurance company (and therefore exempt from execution) should not be set aside. Their rationale was that the transaction was part of a legitimate retirement planning exercise. This was so, even though the effect thereof was   to transfer funds out of reach of Dr Ramgotra’s creditors.

The brief facts of Ramgotra are as follows. Dr Ramgotra was a family physician that immigrated to Canada from the Indian sub-continent and practiced in Saskatoon. Illness hit him in his 60’s and his practice diminished, although overheads remained constant. He made an assignment into bankruptcy in 1992 and he was granted an absolute discharge a year later.

The issue in the case was the status of his Registered Retirement Income Fund (RRIF) managed by an insurance company. Registered Retirement Savings Plans (RRSP’s) and RRIF’s that are managed by insurance companies and in respect of which a protected beneficiary designation has been made are exempt from seizure under Provincial law. (In this case, s158 Saskatchewan Insurance Act (1978)). The protected class of beneficiaries consists of spouse (including same sex partner), child, grandchild and parent.

The exact process by which Dr Ramgotra managed to keep his RRIF proceeds was as follows. He transferred non insurance managed (and therefore non exempt) RRSP’s into an insurance administered (and therefore exempt) RRIF in 1990. This was done in good faith at the suggestion of his broker. The disposition took place within 5 years of bankruptcy. The disposition was void against the trustee   in bankruptcy as it was not effected at arms length to a third party for valuable consideration pursuant to ss91(1) and (2) Bankruptcy & Insolvency Act (“BIA”).  The court held, however, that although the assets vested in the trustee in bankruptcy, the trustee could not deal with them and had to return them to the bankrupt   upon the bankrupt’s discharge. This was because s67(1)(b) precludes the trustee from dealing with assets that are exempt from execution or seizure under provincial legislation.

The trustee, having failed under the BIA prayed in aid Statute of Elizabeth on the grounds that the transfer from the non exempt RRSP into the exempt insurance administered RRIF was a “fraudulent conveyance”. This argument failed. The court held that there was no evidence of fraudulent intent, the   transfer being effected in good faith as part of a normal retirement planning   exercise.