The ability to decide who receives the benefit of our financial assets when the time comes is a valuable estate planning tool. One of the ways this can be achieved is through a “beneficiary designation”. When you make a beneficiary designation, you designate who will receive the benefit of your financial asset, or “plan”, upon your death. A “plan” is defined in Part III of the Succession Law Reform Act (“SLRA”) and includes pension plans, retirement plans, welfare or profit-sharing funds, and trusts, among others. Two common types of plans are Registered Retirement Income Funds (RRIFs) and Tax-Free Savings Accounts (TFSAs).
Through this process the person or persons and/or charitable organization(s) you designate become the named beneficiary of your plan. A prior beneficiary designation can also be revoked, and a new beneficiary designation can be made, by an “instrument”, such as a beneficiary designation form, or by a Will.
Designating one or more people or charities as beneficiaries of a plan has advantages, such as allowing the plan to pass outside of your estate in order to avoid probate fees, while also allowing the beneficiaries of that plan to receive the funds faster because the probate process is bypassed. Yet, it is also important to keep some assets inside your Estate to avoid liquidity issues.
The detail and language used in a beneficiary revocation and/or designation are key, particularly if being carried out through your Will. The SLRA is clear that a revocation and/or designation will only be effective if it relates expressly to a plan, either generally or specifically.
If using a Will, a revocation or designation must specify the exact plan that is being referred to (e.g. “my TFSA account #123456 at TD Bank”) and will not be effective if it is vague or unclear as to which plan is intended (e.g. “I hereby revoke all prior beneficiary designations”). The designation should also refer to the beneficiary by their full name to avoid any confusion surrounding who the beneficiary is supposed to be (which could result in beneficiary disappointment, and even litigation).
Beneficiary revocations and designations are useful estate planning tools, but if they are not executed properly, they can create uncertainty that can negate your intentions regarding the recipient of your plans. Remember, one or two missing words or numbers can be the difference between a valid and invalid revocation and/or designation, so be sure to confirm that all of the necessary details are correct in order to ensure your plans pass to their intended beneficiary.
