Do you Have the Right Beneficiary Elections in Place?

What will happen to those registered investment accounts and other assets accounts when that event occurs?

That depends on the documentation you put in place to implement your estate plan. That documentation can determine smoothness of your estate settlement and even some of the tax treatment for your beneficiaries. Here some of the very basics, to start your checklist:

1.    Make sure that your Will and your beneficiary elections are consistent, or you leave your estate open to conflict and even litigation. Extra scary is the fact that different courts in Canada have disagreed on which document takes precedence.

2.    Naming a beneficiary on life insurance policies, registered investment accounts and segregated funds can simplify estate settlement and decrease the amount of assets that must be probated. In Manitoba, there are no probate fees, but assets included in probate do become part of the public record.

3.    However, if you are leaving your estate equally to your kids or anyone else, name them as equal beneficiaries of all registered accounts, life insurance and the residue of your estate. Do not name one as beneficiary of an RRSP and one as beneficiary of a life insurance policy, for example.

In that event, it is nearly impossible to provide equal distributions, either in amount or tax treatment, and wide inequities can occur.

4.    With TFSAs (Tax Free Savings Accounts), name your spouse or common-law partner as successor holder, rather than designated beneficiary. In this way, the entire TFSA is available to the spouse as a TFSA tax free, regardless of the contribution room of the spouse.

This can also be achieved by naming the spouse as beneficiary; however, the transfer must be completed by the end of the following year, and any investment income earned by the TFSA in the transition period is taxable to the spouse.

5.    Life insurance policies are designed to be very effective with one or more named beneficiaries. However, if the distribution of your estate is complicated, contains different classes of beneficiaries or the estate will need liquidity for taxes or other liabilities, consider naming “Estate” as the beneficiary, and have your up-to-date Will look after the distribution.

All of this assumes that you have reviewed your Will and made sure it is up-to-date for your current situation. We advise our clients to review their Wills every two or three years, and immediately if the tax or estate rules change. Talk to your lawyer.

Pay special attention to your executor selection, as someone who was a great choice a few years ago might not be best anymore. Name at least one backup for your executor.

Appoint someone to be your power of attorney, on an “enduring” basis. This means that the appointment will still be valid if you become incapacitated. Again, name a backup for that first attorney.