The cost of giving and receiving

Whether you are 40, 60 or 80, it is almost certain you hav already selected one or more beneficiaries. Surprised? No need to be. When you buy an RRSP, RRIF or a TFSA, purchase life insurance, enrol for group benefits at work or review your own will, you name beneficiaries.

It is also quite likely you may be named as a beneficiary by a loved one or other family member.

Have you ever given much thought to what that means?

A beneficiary is a person or organization who is entitled to receive a benefit upon death of an individual.

You may be a beneficiary in a will or named specifically under a policy or plan.

You can be both on the giving and receiving end at the same time.

Beneficiaries could receive a gift or bequest of money and-or property.

However, not all property or assets are distributed through a will.

Some examples are jointly owned property, assets dealt with under a marriage contract or business assets dealt with under a buy-sell agreement.

Your estate can be designated as the beneficiary for life insurance, RRSPs, RRIFs, TFSAs or your pension plan.

When your estate is the beneficiary, probate is required since the distribution of these assets is flowed through your will.

The value of your estate is subject to probate fees.

While reducing probate fees is nice, it shouldn’t be the driving force behind your estate plan.

One of the simplest ways to reduce or avoid probate fees is to name a beneficiary on your RRSP, RRIF, TFSA and any insurance policies.

Naming a beneficiary means these assets do not form part of your estate and are not subject to probate fees.

The assets are distributed according to the beneficiary on record. Are yours up to date? Perhaps you have been named as a beneficiary by a parent or grandparent. Have you thought about how this will affect your life now and into the future?

If you receive an inheritance at age 40, then likely this gift will also impact your estate and how you decide where your assets should go and to whom.

You may wish to consider adding a second or alternative beneficiary, especially if your spouse is your only beneficiary now.

An alternative beneficiary covers the possibility of you and your spouse dying at the same time.

In the case of life insurance, the death benefit is paid directly to the beneficiary named on your policy.

This amount is tax-free to Canadian beneficiaries and since the death benefit does not go through the will it is not subject to probate.

You may wish to check your beneficiary designations on any life insurance policy you have to ensure it reflects your current wishes.

If you have indicated your estate as the beneficiary, the death benefit is paid to your estate.

In instances where the purpose of life insurance is to pay the final income taxes, this may be a practical way of ensuring the estate has sufficient funds to do so.

Some older insurance policies may have irrevocable beneficiary designations meaning they cannot be changed without the signed consent of the previous beneficiary.

Check it out so you don’t have unplanned surprises.

Contact your insurance broker or insurance company for a beneficiary change form where required.

Another area to review is segregated funds.

Because segregated funds are offered through insurance companies, a beneficiary can be named.

This means the money can be passed directly to the beneficiary and does not need to flow through a will.

Do you have a list of your designated beneficiaries?

When was the last time you reviewed your list?

Review it at least every three to five years or when a significant event occurs in your life.

You’ll be glad you did.

Marion Wahl is a Kelowna-based chartered professional accountant. Reach her at info@wahlcga.com.