What do you need to know before filling in the beneficiary designation form?
When you own a registered account such as your pension plan, one of the things you will need to do is name a beneficiary. Completing the Designation of Beneficiary form allows you to state where your assets will go after your death. You can choose specific individuals or charities. Each option has many important benefits, as we explain below. We’ll also discuss considerations to think about when choosing beneficiaries. It may not be as straightforward as you think!
Different types of beneficiaries’ designation
Primary Beneficiary
A primary beneficiary is first in line to receive the assets in the account. Pension legislation dictates that your spouse is your sole primary beneficiary. You may only name another primary beneficiary(ies) if your spouse waives the right to all or a part of the death benefit. They must submit a Spouse’s Waiver of Death Benefits Prior to Retirement form.
Designating Multiple Primary or Contingent Beneficiary(ies)
While the contingent beneficiary is next in line. Plan legislation allows you to have multiple primary and contingent beneficiaries. The contingent beneficiary will only receive benefits if the primary beneficiary dies before you. There are two ways you can designate multiple primary or contingent beneficiaries:
Joint Designation
This is where you are designating more than one beneficiary to share the death benefit. The living beneficiaries receive equal portions of the benefit. You do not state any percentage amounts.
In-common Designation
This designation is the act of naming the person who will inherit an asset in the event of your death. Use this designation if you want more than one beneficiary to share the death benefit. You can divide the benefit into specific portions among the beneficiaries. You also determine the percentage of the death benefit you want to go to each beneficiary. If any of the in-common beneficiaries listed die before you, you have the option of distributing their share in one of three ways. Their share can:
- go to their descendants (e.g., children, grandchildren, and great-grandchildren);
- be divided among the other surviving beneficiaries (pro-rated based on their entitlement); or
- go to your Estate.
Advantages of Designating Beneficiaries
Avoiding probate
Designating beneficiaries allows assets to pass outside your estate and bypass the probate process. You beneficiaries will receive their benefits faster. Probate is a process where your executor applies to court to approve the will. The probate process can be lengthy. There is a possibility of delay in asset distribution to loved ones.
Reducing probate fees
Most provinces assess probate fees on the value of the assets passed to beneficiaries under your will. Probate fees are levied only against assets that pass through your estate. Appointing beneficiaries for some of your assets helps your estate reduce or avoid probate fees.
Providing potential creditor protection upon your death
Your executor must notify your creditors that you have died. Designating beneficiaries for your assets prevents those assets from becoming part of your estate. This could protect them from claims by creditors.
Avoiding intestacy rules
If you die without a valid will, your assets with beneficiary designations may avoid the mandatory provincial intestacy rules. These rules determine which individuals will receive your assets and the amount each individual will receive. These individuals may not be the people you wish to leave an inheritance to, or you may not wish them to receive the amounts prescribed by the intestacy rules.
If you want to know more, consider talking to one of our Retirement Information Consultants. They will help you understand your personal situation and how this decision fits into your overall financial plan.