Beneficiary designations are a way for testators to make major changes to their estate with minimum effort.
Although they’re often forgotten by testators, the beneficiary designations on things like RRSPs, RRIFs, life insurance policies and Tax-Free Savings Accounts, are a critical part of any estate plan. Outside of real estate, these assets are frequently the most valuable single assets in many estates.
The main benefit of naming someone to receive the funds directly from your plan or policy is that it allows the money to bypass your estate altogether. When nobody is designated, they could become subject to probate and the 1.5-per-cent Estate Administration Tax otherwise payable on all assets in the estate over $50,000.
Apart from saving them a tax bill, heirs will also thank you for designating them as beneficiaries because of the time and hassle they will save by staying away from the probate process. It can be a draining experience, since it routinely takes months for executors to get the court’s seal of approval via its overworked estates office, before they can start distributing assets.
Sadly, it’s not always possible to stay out of court, as demonstrated by a recent court case, which involved a dispute between a mother and daughter over the ownership of her deceased stepfather’s $180,000 RRSP.
According to the decision, the mother took issue with the bank form that the deceased had used to update his RRSP preferences, changing the designated beneficiary for the account from his estate to his stepdaughter. One of the pages was missing from the bank’s records, which the mother argued should be enough for the proceeds of the RRSP to fall into the estate, of which she was the main beneficiary.
Mother and child had already fallen out when the daughter sided with her stepfather as the parents’ marriage broke up in 2014. The daughter remained on better terms with her stepfather until his September 2019 death.
In the end, a judge sided with the stepdaughter, finding after a full review of the evidence that the disputed beneficiary designation form met the requirements of Succession Law Reform Act.
The deceased in this case died intestate, and while it’s no guarantee that the existence of a will prevents litigation, I believe that regularly turning your mind to your estate and beneficiary designations – and then getting your wishes down in writing – may reduce the chance of a legal dispute among your heirs.
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