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This page is about beneficiary designations.

For information on ‘joint ownership’ click here.

For many Canadians it is possible to transfer their most valuable assets outside their estate via joint ownership and beneficiary designations. How these assets are dealt with is, therefore, the most important aspect of the estate plan, and yet by definition, if they pass outside the estate, they are not governed by a will.

Because this issue is so important, ‘drafting a will’ can never be a substitute for developing a thorough estate plan.  Beneficiary designations are possible for:

  • RRIF / RRSP / TFSA. All of these assets can pass directly to a designated beneficiary. When they do, they are not governed by the will and do not form part of the estate, even though this can have serious tax implications for the estate itself.


  • Pensions.  If you have a spouse, then receipt of the pension is governed by the Pension Benefits Act. If you do not have a spouse, many pensions permit designation of benefits to either your estate or an individual. When an individual designated beneficiary receives from a pension, the pension is not governed by the will and the pension does not form part of the estate of the deceased.


  • Life insurance. Life insurance passes a) to a designated beneficiary outside the estate, unless b) the estate is designated, or no beneficiary is designated.

The use of beneficiary designations works very well for married couples who intend to leave 100% of their estate to each other, with no restrictions on how the surviving spouse deals with the assets later.

Beneficiary designations can be extremely dangerous when used for most other estates. They can, when used carefully, still be efficient and effective, but care must be taken to ensure that the entire plan hangs together.

Warning: taxes!

Having assets pass directly to named beneficiaries is a common strategy for reducing probate taxes and executor fees. However, it is not without risk if the beneficiary is anyone other than your spouse who is also the principal beneficiary of your estate. It can result in some real unfairness.

You can roll your RRIF/RRSP over to your spouse or disabled child without income tax consequences.

If the recipient of your RRSP/RRIF is not your spouse or disabled child, then the entire value of your RRSP/RRIF must be included in your taxable income in the year of death. This can result in you having a very high income and your estate having very high income tax payable (often, at least 50% of the value of the RRSP/RRIF).

If the named beneficiary of the RRSP is not your estate, that individual will receive 100% of the RRSP without any deduction for the taxes payable. The liability for the tax will be borne first by the estate (and thus the beneficiaries of the estate) and by the beneficiary of the RRSP.

In or outside the will

Most beneficiary designations are done, at least ‘the first time’ on the forms provided by the financial institution when the plan is set up.  This is very convenient.  However, it does have some significant risks:

  • the designation is made, often in a rush, at a bank, with no estate planning advice;
  • it is easy to forget who the designated beneficiary is and thus not consider it properly in a complete estate plan;
  • designations are often left ‘stale’ or not updated – for instance upon separation or divorce, or when the designated beneficiary dies.

We strongly recommend that you confirm all beneficiary designations as part of evaluating and updating your estate plan.

You are not obliged to use the paperwork of the financial institution to revoke or chance a beneficiary designation.  It is possible to revoke or make a beneficiary designation ‘by will’.  However, care and precision must be exercised in the drafting to make this effective to bind the financial institution, and, to avoid adverse tax consequences.

At a minimum, a beneficiary designation should clearly reference the plan, the revocation (if any), and the new beneficiary (which may be a person, or the estate).  Preferably this should reference the institution and account number.


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