Leaving money to a secret beneficiary is tricky, experts warn
Secret trusts and insurance policies are two ways to avoid raising suspicions, but it’s complicated
When it comes to requests to have inheritance money left discreetly, Toronto estate lawyer Ed Olkovich says it’s typically not the racy stuff most people might expect, such as funds for a secret lover or a child out of wedlock.
Rather, he says, it’s often done to avoid having something that could appear unseemly included in a will — which becomes a public document once it’s probated.
“I’ve had a strange case where somebody said to me, ‘Don’t put that person’s name in the will because my partner will go crazy if I left this person money,’ ” Olkovich says, citing the example of a client wanting to leave a sizable gift to a loyal employee without raising any suspicions from his wife.
“The next thing you know, somebody is accusing them of having an affair.”
But regardless of why you might want to leave money for a secret beneficiary, there are lawful ways to do it, says Ottawa-based estate lawyer Norman Bowley.
One option is to make arrangements with a trust company — legal entities often used when dealing with estate planning matters — that administer the money either during your lifetime or after your death.
“They’re discreet and professional and you would literally put in the trust, ‘When I die you are to give this $100,000 to such-and-such-a-person,’” says Bowley. “That is not going to get out in the public, provided that you take the care to use an instrument for which you don’t need probate.”
Another option for leaving money confidentially is a secret trust in which you leave assets to a person named in your will with pre-arranged instructions that they privately give the funds to someone else who has not been named in the will.
For instance, Bowley says, you could leave money to a sibling, with the understanding that they would give the funds to your secret beneficiary — “a mistress, for instance.”
That means the gift is secret even after the will becomes public.
However, enforceability of a secret trust may be a concern because there is little you could do to ensure your wishes are actually carried out.
Bowley says that “if your brother turns out to be a scalawag after your death, he may just keep the money for himself.”
A permanent insurance policy that guarantees a payment, says Lorne Marr of LSM Insurance in Markham, Ont.
“The owner of the policy can choose whoever they want as the beneficiary, so long as there is an insurable interest,” Marr says.
“But the nice thing about an insurance policy also is that it supersedes the will,” he adds, meaning that whatever you designate in your insurance policy is not part of your estate and therefore subject to probate.
But in terms of the actual pay out, the insurance company needs two things from the beneficiary: a claimant’s form explaining their relationship to the insurer, as well as a copy of the death certificate — the latter of which could be tricky, Marr says.
Olkovich points out, however, that while an insurance company won’t tell you who a designated beneficiary is, that doesn’t mean the policy becomes confidential.
“If it’s for a large sum of money a court can order that information to be disclosed,” he says.
Generally, Olkovich says, the difficulty with trying to leave money in secret is that after you’re gone it’s no longer a secret once the beneficiary actually starts receiving the funds.
“If all of a sudden a large sum of money is missing out of your account, someone is going to follow that paper trail and they’re going to say, ‘Well, whatever happened to this money?’ ”