Do you know who your beneficiaries are? It’s the all-important question we asked in last week’s blog post on named beneficiaries. Far too many people fail to update their beneficiaries – or worse have no beneficiary at all. Naming a beneficiary is crucial step in estate planning. You want to make sure your loved ones are taken care of when you pass away. Failing to name a beneficiary can result in your estate paying higher probate fees, not to mention it could delay the payment of death benefits at an already stressful time.
Last week we looked the naming beneficiaries for TFSAs, RRSPs and pensions. This week let’s look beneficiaries for RRIFs, segregated funds and life insurance policies.
What happens to the funds in your RRIF when you pass away depends on who you choose as your beneficiary. Similar to RRSPs you can choose a beneficiary for your RRIF. However, unlike RRSPs, you’re able to name your spouse or common-law partner as your “successor annuitant.” Your beneficiary doesn’t have to be the same as your RRSP, but if you don’t name a beneficiary, your RRIF will be included in your estate and subject to probate fees. This could result in your beneficiaries receiving less money than they had hoped once income tax and probate fees are taken into account.
Naming your spouse as the successor annuitant is the simplest solution. When you do this, your spouse automatically takes over your RRIF and starts receiving the payments. There’s no need to change your investment portfolio or pay trading fees. Alternatively, you can choose for your spouse or beneficiaries to receive a lump sum payment upon your death. You might think twice before doing this. You may sell at a time when markets are down, not to mention there might be trading costs. There will also be paperwork to complete. Do you really want your beneficiaries to deal with that during an already tough time?
A segregated fund is similar to a GIC. It’s a mutual fund with an insurance guarantee. Your principal is guarantee upon your death. The death benefit typically guarantees 75 percent or 100 percent of the premiums paid. You can choose one or several beneficiaries for segregated funds, including your spouse, children and charities. Naming a beneficiary means the death benefit passes to your beneficiary without probate fees. In addition to naming a beneficiary you should also name a successor owner so that should you pass it does not form part of your estate but rather rolls over to the new owner.
Life Insurance Policies
When you purchase a life insurance policy, make sure you name a beneficiary. By naming a beneficiary, the death benefit is paid out to them upon your passing. Not naming a beneficiary on your life insurance policy means the death benefit will be paid out to your estate and subject to probate fees.
There are several ways you can name beneficiaries. You can name a sole (one) beneficiary, such as your spouse or common-law partner. You can name a primary and secondary beneficiary. For example, you might name your spouse as your primary beneficiary and your child as your secondary beneficiary. Lastly, you can name a list of beneficiaries. For example, if you’re divorced and have several children, you may wish to distribute the death benefit evenly between all of them.
Need help figuring out who to name as the beneficiary for your segregated fund or life insurance policy? It’s best to seek out help from someone who’s experienced in estate planning. We have a team of experts who can help you navigate the sometimes complex waters of estate planning. Feel free to contact our office today.