Please don’t be mislead by the title to this blog. We are not suggesting that beneficiary designations are to be avoided. Quite the opposite is true. What we actually want to do is highlight the fact that a critical component of estate planning is reviewing your beneficiary designations. What you need to do is ensure that your designations are in sync with the rest of your estate plan.
There are various assets for which you can designate a beneficiary i.e., someone to receive the asset directly upon your death. These include RRSPs, RRIFs, TFSAs, and life insurance products. The designation can be made in your Will or outside of your Will in a separate document. These designations may also be governed by various Ontario and federal laws applicable to the particular asset as well as the specifics of the plan or policy relating to the specific asset.
In the world of beneficiary designations, timing matters. A lot. In other words, signing a beneficiary designation will revoke a previous designation. So if you include a beneficiary designation in your Will and later make a new designation, say by signing a beneficiary designation form at a bank, the new designation will revoke the designation you made in your Will. Extreme care must be taken when designating beneficiaries as what may seem like a simple change to a beneficiary designation can actually undo a carefully executed estate plan.
Let’s look at a common example that we unfortunately see time and time again. In your Will you designate your life insurance policy to be paid into your estate upon your death. You did this as your Will includes a trust for your minor child. Despite having to pay probate fees on the life insurance proceeds, flowing the proceeds into your estate ensures the proceeds will be held for the minor child on the specific terms of the trust in your Will. You are later told by a well-meaning family member that the beneficiary of the life insurance should be the minor child so that probate fees won’t have to be paid on the value of the insurance policy. You go ahead and make the change without consulting your estate planning lawyer. Unfortunately, because of this change, the life insurance may now have to be paid into court until the minor child reaches the age of 18 at which time he or she would get the full amount. Surely this was not the consequence you intended.
If it isn’t clear which beneficiary designation you intended to make or if there is more than one competing designation, problems can arise. These can delay the distribution of your estate and result in certain beneficiaries not receiving what you planned. All of your beneficiary designations should be reviewed and confirmed during the estate planning process and changes made if necessary. No subsequent beneficiary designations should be made without reviewing the change with your estate planning lawyer.
Are you unsure whether your beneficiary designations match your estate planning goals? Call 613.836.9915 or email firstname.lastname@example.org to make an appointment to meet with me at our Ottawa office to review your estate planning. Together, we will do a thorough review of your assets including how you hold your assets and any beneficiary designations you have made to ensure your loved ones will be provided for in the best way possible.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.