Choosing a Beneficiary

Do You Need to Revisit Beneficiary Designations?

Naming a beneficiary is a big decision that may sometimes be overlooked. At some point in your life, you may buy a life insurance policy or start a new job with a retirement plan and receive a form that includes a section for the names of your beneficiaries. Many people, unprepared, leave it blank or complete the section without much thought. If years have gone by since completing account paperwork, it may be time for a review. Here are four questions to consider:

1. Have you named a child or dependent adult as a beneficiary?

In certain provinces, if the proceeds are not directed to a trust set up for the minor, the courts may decide who will manage them. Similarly, if a trust has not been named for the benefit of a dependent adult, the court may potentially appoint someone to make decisions on their behalf. This could lead to delays or additional costs. Directly naming the beneficiary may also unintentionally disqualify them from receiving government benefits.

2. Have you coordinated designations with the rest of the estate?

If you intend to equalize your estate between multiple beneficiaries, do not forget the impact of taxes. When certain assets do not pass through an estate, it may be difficult to accurately equalize amounts for different beneficiaries. For example, suppose you have two grown children as heirs and you designate child #1 as the beneficiary of your RRSP, leaving the rest of the estate to child #2. Upon death, any taxes due in respect to the RRSP would likely be payable by the estate, potentially reducing the amount intended for child #2. This may result in inequities between the division of assets.

3. Have you updated your beneficiary designations?

It is possible that a named beneficiary is no longer alive, or perhaps a major life event, like divorce, has changed the status of an existing beneficiary. It isn’t unheard of to have a former spouse erroneously named as a beneficiary because designations weren’t revisited. If an intended beneficiary has passed away, proceeds are likely to pass through the estate. To avoid this situation, naming a contingent or secondary beneficiary may be useful.

4. Have you been specific in the way you have named your designations?

If you have used non-specific designations, such as “my children,” there may be uncertainty regarding intent. For example, in a blended family, the children of a new spouse may be unintentionally included. Or, if a child predeceases you, that child’s share may go to your other children and not that child’s family, which may not be what was intended.