Who Gets The Corvette? The Importance of Beneficiary Planning

Prince was a gifted musician and a smart businessman, amassing a fortune estimated at over $300 million US. And yet, when he died, he left no documented plan for his estate.

You may not be a Grammy-winning multi-millionaire, but as an investor, chances are you've accumulated some assets. Maybe that's a registered investment account, insurance policies, or maybe a hockey card or glam handbag collection. If you want some say in where these go after you're gone, you'll need a plan.

To take steps toward a smoother transition after you've passed away, you may wish to start with designating a beneficiary on your registered accounts as part of a larger estate plan. Whatever you do, you'll need to be clear on all the provincial laws as they relate to your specific plans.

How to Designate a Beneficiary on Registered Accounts:

Registered account holders outside of Quebec can name a beneficiary for registered plans directly on the account form. (Types of registered accounts are RRSPs, RRIFs, and TFSAs.) For residents of Quebec – Due to a Supreme Court of Canada decision, a beneficiary designation made directly on registered account forms in Quebec could be challenged. You can only designate a beneficiary through a will.

Who Can Be Designated a Beneficiary?

The various provincial and territorial acts specify that the named beneficiary be a "person," but it can be anyone. If you choose not to designate a beneficiary, then upon your death, your plan proceeds will be paid to your estate. You can add a beneficiary when you open an account or anytime afterward. Find out more about designating beneficiaries.

Why Should I Name a Beneficiary?

It's not a requirement to designate a beneficiary. But here's why you might consider doing so:

• Subject to applicable laws, when a beneficiary is named, the assets involved can be given directly to the beneficiary without having to wait for an estate to be settled.
• Taxes are deferred when you name your spouse, partner or a dependent child as a beneficiary of your RRSP or RRIF. The proceeds of the plan do not have to be entered as income on your final tax return.
• It may prevent the plan assets from passing through your estate, which could save money because money held within the plan is not subject to the probate process.

Special Considerations for TFSA holders:

When you designate a beneficiary on your TFSA, your beneficiary will receive the assets in your plan up to the date of your death, tax-free. However, any earnings generated after this date could be taxable. An advantage of naming your spouse or partner a "successor holder" on your TFSA instead of a beneficiary is that your spouse or common-law would be able to transfer your TFSA directly into his or her name without affecting contribution room limits.

Find out more about Estate Planning for Financial and Emotional Peace of Mind.

Other Key Considerations:

• Remember to review your beneficiary designations, especially if there's been a major life change, such as a marriage, birth of a child or a divorce. Contrary to popular belief, a divorce does not cancel the existing beneficiary designation.
• If you have beneficiaries receiving social or government assistance, consider how their benefits could be affected by your bequest.
• Most importantly, beneficiary designations shouldn't be made in isolation, but rather in the context of your overall estate plan, taking into account the provisions of your will and any legal obligations you may have.

Find out More:

Why Designate a Beneficiary?

Designate a Beneficiary

The information provided in this article is for general purposes only and does not constitute personal financial advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.