Naming Beneficiaries for Your Financial Assets

When naming a beneficiary for each of your financial assets, the obvious choice may not always be the best choice. You should consider tax and estate planning implications, among other things. We have listed important items you should consider when naming beneficiaries for major financial assets:

Tax-Free Savings Accounts

With a Tax-Free Savings Account (TFSA), you can name a beneficiary, a successor holder, or both. Only your spouse can be named as the successor holder. This means your surviving spouse can take ownership of the assets in your TFSA without affecting their own contribution room. A beneficiary can get your TFSA assets tax-free and can apply them to their contribution room if they have enough space. It’s important to note that any increase in the value of the TFSA between your death and the date of the transfer will, unfortunately, be taxable to the beneficiary

Registered Retirement Plans (RRSPs and RRIFs)

When you name your dependent child or your spouse as the beneficiary of your RRSP or RRIF, the plan assets roll over on a tax-deferred basis. The same is not true if you name an adult child or anyone else as the beneficiary. When transferring your retirement funds to someone other than a dependent child or spouse, the tax liability for the transfer will go to your estate. This will reduce the amount of money you have to give through your other non-registered assets.

Segregated Funds and Life Insurance Policies

In some situations, you may want to consider using a testamentary trust instead of naming a spouse or child as a beneficiary of life insurance or segregated funds. When you name a minor as a beneficiary, the proceeds of the policy or investments must be paid into a trust in their name. If you name your own testamentary trust, you can control where your trust will be held and who will be managing your funds. This is especially a good idea in blended families. You can guarantee each child and spouse gets exactly what you desire, even if they are a minor.

The implications and rules of naming a beneficiary are complex and can very daunting to work out on your own. An estate planning expert at The Beacon Group of Assante Financial Management Ltd. can help you review your personal estate planning goals in order to name an appropriate beneficiary or successor holder for your registered and non-registered accounts.