In Part One, I wrote about some of the various ways beneficiary designations on registered plans and/or life insurance policies (referred to each as a “Plan” in this blog) can be made and some of the advantages and drawbacks of each.
As mentioned in that blog it is important to speak with your estate planning lawyer to discuss your beneficiary designations and which options best achieve your intentions. In addition to the considerations mentioned in that blog, below are some other considerations to be taken into account when deciding what form of beneficiary designation makes sense for your estate plan.
First, a later beneficiary designation revokes a prior designation, regardless of how the designation is made. For example, if you have designated beneficiaries on a Plan with the company you hold this Plan with, and afterwards designate new beneficiaries in your Will or in a life insurance trust, the most recent designations will revoke the prior designations made on the company forms. Similarly, if you filled out company forms designating beneficiaries after you had done so in your Will and/or life insurance trust, the designations on the company forms would prevail (having revoked the prior designations in the Will and/or life insurance trust).
With this in mind, it is important that you inform the company you hold your Plans with if you make updates to your beneficiary designations in your Will or a life insurance trust, and provide them with a copy of these documents (or the relevant provisions from your Will) for their records. If the company has no knowledge of the update, it could pay out funds in accordance with a revoked designation on the company forms directly to the beneficiaries named on such forms without knowing that this designation had been revoked by a new designation in your Will or life insurance trust.
It is also important to note that if you designate a beneficiary of your registered plans in your Will, such designations will only apply to the registered plans that you own at the date you sign your Will. If you change your plans or acquire new plans, or your RRSP is converted to a RRIF, you will need to update or re-sign your Will accordingly or update the designations though the company forms.
Finally, it is worth mentioning that while designating a named beneficiary on a Plan does avoid probate tax among other advantages, there are circumstances when it makes sense to nonetheless name your estate as the beneficiary of your Plan (despite this exposing the Plan funds to the 1.5% probate tax). This may include circumstances where you want the Plan funds to be dealt with in the same manner as the residue of your estate, and the way the residue is to be dealt with is particularly complex (i.e. complicated gift over and/or trust provisions), or where you want these funds to be available to your estate for payment of debts and taxes before any balance is divided among beneficiaries. The value of the Plan funds among other considerations will inform whether this is the best option for you.
Beneficiary designations are an important piece of your overall estate plan and there are various factors to consider when deciding how to deal with your Plans. If you would like speak to an estate planning lawyer about your estate plan, please reach out to us online or by phone at (416) 682-7058.
Learn more in Beneficiary Designations & Your Estate Plan: Part One.