By Karen Benson

Have you checked your beneficiary designations recently? If not, you may find that your designated beneficiary is not who or what you think it should be, especially if you have divorced, remarried or had children since your last review.

While many of us ensure important documents such as wills are updated on a frequent basis, we tend to neglect our registered accounts and life insurance policies.

The main benefit of naming a beneficiary for a registered account or life insurance policy is it allows the money to go straight into the beneficiary’s hands rather than having to go through your estate, thus eliminating the need for probate fees.

Without a proper beneficiary designation, upon your death, the proceeds from a registered account or life insurance policy becomes part of your estate.

When you pass away owning a registered plan (RRSP, RRIF, LIF or LRIF), a tax bill is triggered when a beneficiary is named who is not your spouse.

The beneficiary of your plan will receive the registered assets in full without tax being deducted and remitted to the Canada Revenue Agency. So, how is the tax bill paid?

The taxes owing will be paid out of the remaining assets of your estate.

Few people expect to die at the same time as their spouse and they name each other as their designated beneficiaries. In the case of simultaneous death, a determination needs to be made about which spouse died first, even though both deaths occurred at the same time.

This determination may be critical, especially if there are children from a previous marriage. Proper documentation designating contingent beneficiaries for normal and extenuating circumstances will ensure that registered assets and insurance proceeds are directed towards your intended beneficiaries.

A similar dilemma arises if children are named as beneficiaries, but documentation has not been updated to include those who were born after the initial designation. Another common occurrence is for a parent to make a beneficiary designation for a minor that simply uses the words “In Trust For” on the application.

This could mean no formal written trust agreement exists or that an agreement does exist but is not cited in the designation. These types of designations have implications often not thought of at the time of making the beneficiary designation.

To prevent these situations and to ensure your beneficiary designations reflect your intentions, it is crucial you conduct a periodic review of your designations with a professional advisor or immediately after you experience a change in family status or circumstances.

n Karen Benson is a Financial Advisor with Raymond James in Tsawwassen ( Suite 102 – 5405 12th Ave. ) Call 604-943-6360 or email karen.benson@raymondjames.ca. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James is a member of CIPF.