Reviewing beneficiary designations is no small matter for your estate plan
Depending on the province you live in, you may be able to name a beneficiary on the following financial plans and policies:
- Registered Retirement Savings Plans (RRSPs)
- Registered Retirement Income Funds (RRIFs)
- Tax-Free Savings Accounts (TFSAs)
- Life Insurance Policies
- Some Pension Plans
Reviewing and updating the beneficiary designations on financial accounts and insurance policies can seem like a minor administrative matter. However, a recent court case in Nova Scotia shows how major, and potentially devastating, an issue it can be. Earlier this year, the CBC reported that a widow with a young daughter was left without access to her deceased husband’s Registered Retirement Savings Plan (RRSP) proceeds despite his having created an up-to-date will – including a clause to revoke outdated designations. The husband had long ago designated his mother as the beneficiary and made no updates to the account after his marriage. Whatever the details of this case, the lesson for all is clear: a regular review and updating of beneficiary designations is sound estate planning practice.
What is it? Registered financial plans, including RRSPs, Registered Retirement Income Funds (RRIFs) and Tax-Free Savings Accounts (TFSAs), as well as life insurance policies and many pensions, allow you to name a person to whom the proceeds of the account or policy will accrue should you die. Note that residents of Quebec do not have the ability to name a beneficiary within the registered financial plan documentation and must use their will to achieve their estate planning goals for these accounts.
What are the benefits? Naming a beneficiary means that the proceeds remain outside your estate and therefore are not controlled by the executor or the estate trustee, are not governed by the will, do not require probate, and no estate administration taxes are payable. The proceeds are paid directly – and often, quickly – to the beneficiary. It is common and sound planning to name your spouse if you have one, as it can expedite payments to them at a time when the funds may be needed. Note that if you do not want to name a person or prefer these assets to be considered as part of your estate, you can name the estate itself as the beneficiary.
Time for an update? As with the case of the family in Nova Scotia, many of us made beneficiary designations when opening our accounts years ago and have forgotten about it. If you cannot recall the beneficiary of each of your accounts and policies, that’s a sign that a review is long overdue. As with other aspects of your will and estate plan, any life change should trigger a review – including marriage, separation or divorce, or the death of anyone named as a beneficiary in your plans or will. And as estate matters are covered by provincial law, if you move to another province, you should understand how things work there and review your entire estate plan accordingly.
If you think it may be time to review your beneficiary designations on your financial accounts, don’t hesitate to get in touch. Also, be sure to reach out to your professional insurance advisors and pension administrators, if appropriate.