Blended families add complexity to estate planning

Keeping your beneficiary designations up to date can save your heirs time and money.

Although they’re often forgotten by testators, the beneficiary designations on things like RRSPs, life insurance policies and Tax-Free Savings Accounts, are a critical part of any estate plan. 

First of all, naming someone to receive the funds from your plan or policy allows the money to flow straight to them following your death, bypassing your estate. If nobody is designated, then 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 avoiding an unnecessary levy on their windfall, heirs will 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. 

But there’s another reason for staying on top of your beneficiary designation choices – especially if you’ve been divorced before or have anything but a conventional family arrangement – and that is to minimize the chance of a legal dispute among heirs.  

In a recent decision, an Ontario judge was asked to decide who should receive the $166,000 still left in a deceased man’s Locked in Retirement Account. His ex-wife claimed that the money should go to her, relying on a 1997 beneficiary designation naming her as the recipient. 

According to the ruling, the man signed a form naming his parents as the new designated beneficiaries in 2001, around the same time as they filed for divorce following what the judge called an “acrimonious separation.” However, it seems the deceased never actually returned the updated form to the financial institution holding his LIRA, so they only had his ex-wife’s version in their records.  

The judge eventually sided with the parents, ruling that their photocopied version of the form signed by their son was enough to revoke the 1997 designation naming his former wife, In any case, she found that the ex-wife had already received her share of the LIRA as part of their final divorce settlement, reached in 2005.

Although the proceeds of the fund ultimately ended up with the people intended by the deceased, it took until three years after his death to settle the matter. 

This kind of case is part of the reason I tell my clients to revisit their estate plans every few years, or at least after major life events such as the birth of a child, marriage or divorce, just to make sure the beneficiaries you named first time around still make sense.

Disclaimer: The content on this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this web site are advised to seek specific legal advice by contacting members of Laredo Law (or their own legal counsel) regarding any specific legal issues.

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