Things to consider when designating beneficiaries for your estate plan
One of the key considerations to estate planning is designating who will be a beneficiary. Not only do you need to decide who will be a beneficiary under your will, you also need to take into account life insurance policies, pensions and registered investments that permit you to assign a designated beneficiary.
Our Richmond Hill wills and estate lawyers will ensure that you understand the most important things to consider when designating beneficiaries for your estate plan.
What is a beneficiary?
A beneficiary is a person who will receive a benefit when you die, either from your estate or directly from another source, such as an insurance policy with a death benefit.
When your beneficiary is a minor
If you want to designate someone under 18 years of age as a beneficiary to your estate, then you must name a trustee to manage the assets in question until the beneficiary reaches the age of majority. Consider whether you want the trustee to save the assets and hand them over to the minor when they turn 18 or whether you want the trustee to use the assets for the maintenance of the minors.
Similar concerns may arise if you want to designate someone with a disability as a beneficiary.
Designating your estate as a beneficiary to a life insurance policy, pension or RRSP
Life insurance policies, pensions, and registered investments such as RRSPs and TFSAs allow you to name a beneficiary of that specific asset. When you die, the asset or the death benefit goes directly to your designated beneficiary.
If you fail to name a beneficiary, or if you designate your estate as the beneficiary, then the asset or benefit becomes part of your estate and is distributed according to the terms of your will. Your estate is subject to an estate administration tax, which is based on the total value of your estate. When life insurance benefits or registered assets pass through your estate, that increases the value of your estate and the amount of tax that your estate pays.
If your estate has outstanding debts at the time of your death, then your estate has to use the assets in your estate to pay those debts before distributing what remains to your beneficiaries. If your estate will have significant debts, you may be able to preserve an asset for your beneficiaries by ensuring that it passes outside of your estate.
Upon your death, you can roll an RRSP over to your spouse or a disabled child without triggering income tax on the amount of the RRSP.
When the designated beneficiary of an RRSP is anyone other than your spouse or a disabled child, then the Canada Revenue Agency considers that you received the entire amount of the RRSP as income in the year of your death. This means that your estate will have to pay income taxes on the amount.
If your RRSP has a designated beneficiary other than your spouse or a disabled child, then they receive the entire amount of the RRSP, but your estate is still responsible for paying the relevant income taxes. This can result in unfairness if the beneficiaries of your will are different than the beneficiaries of your RRSP.
Speak To a Richmond Hill Wills and Estate Lawyer Today for Legal Help
Contact our will and estate lawyers for further information on things to consider when designating beneficiaries for your estate plan. At Blackburn Lawyers – our wills and estates team have decades of experience in estate planning and would be pleased to speak with you regarding your estate planning needs.
Disclaimer: This article is only meant to act as a general overview on a legal topic and does not constitute legal advice. For specific legal advice on your estate planning needs – please consult with an estate planning lawyer.