Exceptional solutions. Your needs are as unique as you.

Close this search box.




our 10th year
blog anniversary

Beneficiary Designations: When Less is Not More

You may know that having a beneficiary designation for your life insurance policies or registered retirement plans (RSPs) is a good idea, including in order to avoid Ontario estate administration tax (previously probate fees) on the value of assets which would otherwise pass through your estate (see our Client Advisory “Planning to Minimize Estate Taxes Under The Estate Administration Tax Act, 1998 (Ontario)”), and protect against creditor claims. However, using the simple forms provided by the insurer or financial institution will not be sufficient or optimal in many situations. In contrast, a tailored designation which can be included in your will can allow for the same level of intricacy as the provisions in your will, including trust provisions for minor children and other beneficiaries.

Life insurance policies and RSPs can represent a significant portion of a person’s estate, in some cases exceeding the value of their other assets. Many have significant term life insurance to provide for loved ones should they unfortunately pass away while they have dependants, including children and spouses. Many have invested a large portion of their savings in an RSP or other registered investment vehicle in order to maximize current and future tax savings and be comfortable after retirement.

These significant assets are often overlooked when completing an estate plan. Too often, reliance is placed solely on passing these assets by means of a too simplistic beneficiary designation form, which may only allow for the designation of primary beneficiaries, and possibly for alternate beneficiaries and for trustees for minor beneficiaries. More complex terms are simply not possible given the simplicity of the forms. As a result, minor beneficiaries may receive funds they are entitled to upon attaining the age of 18, which is not usually desirable if significant funds are coming to a child. If the trustee designation portion of the form is overlooked, the institution holding the assets will be required to pay any funds payable to a minor beneficiary into court where the funds will be held until the child is 18, or to a court-appointed guardian, except in limited circumstances. Tax planning opportunities, such as a tax-driven trust to split income between a beneficiary and a testamentary trust funded with insurance or RSP proceeds, will be lost as the institutional forms designate adult beneficiaries outright.

Alternatively, beneficiary designations can be done in a will, which when properly drafted avoid the assets passing through the estate, and being subject to estate administration tax, as well as creditor claims. Unlike institutional forms, designations in a will can be tailored to meet individual circumstances, provide for alternate trustees, direct payment of income to beneficiaries as the person sees fit, and direct payment of capital to one or more beneficiaries at any age. Portions of the assets can be directed to be paid to or held in trust for different individual or charitable organization beneficiaries, and many other flexible arrangements can be made.

Estate planning involves not only planning for assets which pass through a person’s estate, but all assets passing on death. The best means of passing assets to beneficiaries should always be considered. Where a person’s assets include significant life insurance or RSPs, designations to provide for beneficiaries in an appropriate and customized manner specific to each individual situation should be considered as part of comprehensive estate and will planning.

— O’Sullivan Estate Lawyers

Don’t miss our next blog, which will provide an update on recent developments regarding U.S. estate tax.

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.