Designating Beneficiaries: Planning Ahead and Avoiding Mistakes

21 Jul Designating Beneficiaries: Planning Ahead and Avoiding Mistakes

When people think of writing a will, most people don’t consider the beneficiaries that carefully. Of course you’ll leave your estate to your spouse or partner, you think, with some special mention of your kids or grandkids. Perhaps you’ll include some other relatives who are particularly important to you.

But what if your spouse has already passed away? What if your kids are barely 18 and wouldn’t know how to handle a huge influx of cash responsibly? What if your only child has a disability that makes it impossible to be fully independent?

Planning your estate – from writing a will to designating direct beneficiaries for bank accounts and insurance policies – is challenging even in the simplest cases. Working with an expert who can help you consider the ins and outs of the system can help you protect your assets well into the next generation.

Let’s say you have been married to just one person and you want your spouse to inherit your entire estate. Your spouse is also the parent of all your children. And your spouse doesn’t have a challenging financial history or a disability of some kind. In that case, it may be best to designate your spouse as your sole beneficiary.

But there are other considerations as well, and many people don’t think carefully before they name their beneficiaries. Consider these top 5 mistakes below:

• Not naming a beneficiary. RRSPs, TFSAs and insurance policies all allow you to name a beneficiary on the account or policy. This means the money in those accounts or policies will pass directly to the beneficiary, with no outside interference from the will. Naming a beneficiary is a legal agreement, so it won’t be challenged by what’s in the will.
• Naming only one beneficiary. It’s a good idea to name a contingent beneficiary, also known as a secondary beneficiary. This is not the same as naming two equal beneficiaries. A contingent beneficiary will not receive anything at all unless the primary beneficiary dies or cannot be located.
• Ignoring the rights of a spouse. Your spouse has certain rights that cannot be ignored. These include minimum rights to the matrimonial home and/or something similar to what might be received through divorce. A spouse who has been left out can bring a claim against the estate. If you want to cut out your spouse, seek legal advice.
• Failing to update beneficiaries over time. Things happen. Babies are born, people die, couples split up. A major life event should be a reminder to review your list of beneficiaries. In fact, it’s a good idea to review your will completely every 2-3 years.
• Ignoring options that can reduce tax. Many people want to keep their wills simple, so they keep everything in the estate and divide the estate evenly. But naming direct beneficiaries can help ensure your estate passes to your loved ones with less interference and with a smaller tax burden.

To learn more about preparing your estate, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.