Beneficiary Designations - should be reviewed occasionally to avoid future problems
Beneficiary designations are not something that most people give much thought to however, they can result in problems if they are not up to date. If there has been a change in marital status or changes related to children, relatives, or relatives the beneficiary’s designation may be outdated.
There are different types of beneficiary designations depending on the account type.
TFSAs
There are 2 types of designations: Beneficiary and successor holder. Only a spouse or common-law partner can be a successor holder. Upon death the TFSA balance transfers to the spouse with no impact on the spouse’s TFSA entitlements etc.
RRSPs
RRSPs only have one type of beneficiary designation – “beneficiary”. If the beneficiary is your spouse, the RRSP funds simply transfer to their RRSP. No tax is payable until funds are withdrawn from the account.
Tax can also be deferred by designating and transferring the RRSP account balance to a spouse’s or financially dependent child’s or grandchildren’s Registered Disability Savings Plan (RDSP).
If the RRSP is not transferred to a beneficiary account, it is taxed in the year of death. In some cases, it may be better to have the RRSP balance taxed in the estate upon death. The estate beneficiaries then don’t pay any tax when they get the funds.
RRIFs
There are 2 types of designations: Beneficiary and successor annuitant. Only the spouse can be designated as a successor annuitant. Assets in the RRIF and account are transferred ‘in kind’ to the spouse. No tax is payable, and the spouse receives the annuity payments.
The RRIF can also be transferred to an RDSP (see details in RRSP above).
Other types of Accounts
LIRAs. RLIFs, segregated funds, pensions, and insurance rules about beneficiary designations which you should become familiar with to avoid estate problems etc.
Irrevocable Beneficiaries
An irrevocable beneficiary is a person who is designated to receive the assets in a life insurance policy or a segregated fund contract. The beneficiary status is irrevocable: any change requires the beneficiary’s consent.