Naming a beneficiary or successor ensures that recipients get money more quickly and with less hassle when the account holder passes away, and can result in significant tax savings. Successors have additional benefits when compared to beneficiaries, and should be designated if appropriate. If a person passes away without a designation on their registered accounts, the balance will pass to the estate by default.
This is an option for certain registered plans like RRSPs, RRIFs, and TFSAs.
Note: a list of key terms are available at the end of this article.
This article does not apply to residents of Quebec, where provincial law governs how assets are distributed when an individual passes away, and beneficiaries cannot be designated on registered accounts directly.
When discussing registered accounts, the term “beneficiary” refers to someone who stands to receive funds in a designated account. In choosing a beneficiary for the RRSP account, it is important to consider who will receive the most benefit. Please note the differences between designating a spouse (or common law partner) compared to a non-spouse as beneficiary:
Spouse or common law partner: Assets are transferred to spouse’s RRSP as a tax-deferred rollover. This rollover does not affect the contribution room of the receiving person. Probate fees will not be paid on the balance of the RRSP.
Non-spouse: Income taxes are paid by the estate, and the balance is transferred to the beneficiary tax-free. Probate fees will not be paid on the balance of the RRSP.
In the case of TFSA and RRIF accounts, one can also name a beneficiary, with the additional option to name a successor. It is important to know when naming a successor is possible, as doing so may have significant advantages for the receiving party.
It is not possible to name a successor annuitant/holder or beneficiary on a non-registered account. One can explore the option of making accounts joint with right of survivorship (JTWROS) as this can help investments avoid probate and go to the surviving joint account holder.
Note: this can result in tax and legal consequences that should discussed with a professional.
Even if a non-registered account is not JTWROS, you can still transfer investments at cost to the surviving spouse if you want to avoid triggering capital gains at death.
Further, one must ensure that a Will is prepared, and it is recommended that wills are updated at least every 5 years, if a major life change has occurred (marriage, birth of child, etc.), or if significant assets have been acquired.
Note: in many provinces, a change in marital status can revoke any prior Wills.
Any time you are considering your estate as part of your financial plan, it’s always a good idea to work with an adviser.
Our team of CERTIFIED FINANCIAL PLANNER® professionals can work with you to optimize your investments. Decisions around naming successors and beneficiaries will have an impact to your legacy. We’ll show you your options and guide you toward choices that make sense, given your stage of life and financial goals.
Estate: cumulated assets
Beneficiary: person receiving an asset
Executor: person named in Will who ensures assets in estate are disbursed in accordance with instructions
Intestate: refers to a person dying without a Will
Probate: a process during which the Court reviews the Will to ensure it is legitimate
Will: a document specifying how assets are to be distributed following the death of an individual
Our customer care team is here for you.Contact Support