Can I name a beneficiary?

        Determining the most appropriate beneficiary structure for one’s financial assets can be a daunting task. Here are the basics of beneficiary options within the most common investment accounts.

How many can I have?

        From a legal standpoint, a person may name as many beneficiaries on their investment accounts as they like, as long as the total adds up to 100 per cent of the account in question. These rules may vary slightly between financial institutions due to computer system limitations or firm-specific policies, but the larger institutions in Canada have no pre-set maximum.

Beneficiary Types

        There are two main types of beneficiaries: named beneficiaries and successor holders.

        The British Columbia Wills, Estates and Succession Act provides that: “A benefit payable to a designated beneficiary or to a trustee appointed under section 92 under a benefit plan on the death of a participant does not form part of the participant’s estate and is not subject to the claims of the participant’s creditors.” In other words, the assets in accounts with named beneficiaries will pass directly to the beneficiary, bypassing the deceased’s estate. A named beneficiary may be an individual or entity.

        On the other hand, a successor can only be a spouse or common-law partner. Successors become the new account holder and acquire all rights the original account holder has. In the case of an annuity or a RRIF, a successor holder would be considered a successor annuitant.

Account types

        Each of the most common investment account types has specific nuances to consider when determining a beneficiary structure. A TFSA holder can name a spouse or common-law partner as the successor holder. On the death of the holder, the spouse becomes the new holder, keeping the tax exempt status of the TFSA. This will not affect the TFSA contribution room of the spouse. If another beneficiary besides one’s spouse is desired on the TFSA, the account will no longer be a TFSA upon the original account holder’s passing.

        RRSPs permit named beneficiaries. If designated as the beneficiary, an RRSP can be transferred tax-free to an RRSP in the name of the surviving spouse. To all other beneficiaries, including one’s estate, the RRSP is deemed to be disposed of upon the death of the plan holder, and becomes taxable income in that calendar year.

        In the case of a RRIF, there may be a named beneficiary or a successor annuitant. With a successor annuitant, the RRIF will be moved in-kind, tax-free to a RRIF in the surviving spouse’s name, and the account would continue on as normal. Like an RRSP, if a spouse is the named beneficiary of a RRIF, it will pass to him or her tax-free. The main difference, however, is the RRIF payments would be recalculated based on the surviving spouse’s information, not the deceased spouse.

        Non-registered investment accounts do not permit beneficiary designations. Therefore, a non-registered account is handled as part of one’s estate. A joint account with right of survivorship will pass to the survivor upon death, and will not form part of one’s estate.

Final thoughts

        It’s important to ensure your life savings will be distributed according to your wishes, however, it’s also important to consider the risk and complexity of the estate settlement when plan proceeds are split multiple ways. For very complex estates or those with many beneficiaries, it might make more sense to dispose of assets through one’s will. That way, beneficiary information can be changed  easily if need be.

        In addition to your lawyer, be sure to discuss your estate plan with your financial advisor to ensure your financial assets are directed according to your wishes, and will be dispersed optimally.