Missing this Check Box Will Cost You Thousands of Dollars

Someone I knew that passed away a few years ago was very organized. She never forgot appointments, always arrived on time, and remembered the names of all her friends’ kids. But, when she passed away, it was discovered by her children that the beneficiary information on her RRIF was unfortunately left blank. Instead of the money going to her husband tax deferred, it went into the Estate and the taxes had to be paid.

It could have been avoided if the bank was on top of this. They should have made sure the husband was on file as the beneficiary.

I can see how it might have been overlooked. When you open an RSP, RRIF, or TFSA, you might tell the person opening the account you will get back to them about the beneficiary information. After all, you need their social insurance number and birthday to put them on file, and not everyone has that information at their fingertips.

If possible, you want to avoid money going into your Estate. Ontario charges a 1.5% probate fee for any capital above $50,000.

So, who can you have listed as a beneficiary for your various types of accounts?

TFSA

For a TFSA, you have two main options.

• Successor Holder: This can only be your spouse or common-law partner. If you name them as the successor, they essentially step into your shoes once you pass. The account continues to be tax-sheltered and it doesn’t affect their own contribution room.
• Designated Beneficiary: This can be anyone, such as children, friends, or a charity. When you die, the account is closed, and the value at the time of death is paid out tax-free. However, any growth in the account after your death but before payout is taxable to the beneficiary.

Retirement accounts (RRSP and RRIF)

Your registered accounts for retirement can be left to:

• Spouse or Common-Law Partner: This is the most common beneficiary we see. By naming this person the beneficiary, your account can “roll over” into their own RRSP or RRIF without being taxed immediately.
• Financially Dependent Children/Grandchildren: If a child or grandchild depends on you financially (especially due to physical or mental infirmity), the funds can be transferred to them with specific tax advantages. Please contact us for more information on this type of arrangement.
• Anyone Else: You can name anyone (friends, siblings, neighbours), but the entire value of the RRSP/RRIF is added to your final tax return as income. This often results in a very large tax bill for your estate.

Non-registered accounts

You generally cannot name a beneficiary directly on a standard bank account or a non-registered investment account.

However, you can have a joint account with a spouse. This would allow the funds to bypass the estate and go directly to the other person. There are differences between a spouse and a common law partner in Ontario, making it easier for the former to receive funds.

If you add a child as a joint owner to an account, make sure you have good legal advice so that the proper documentation is in place to avoid stressful legal conflicts for your heirs after you pass.

It is a good idea to review your beneficiary information today. While you’re at it, be sure you have a legal will in place that is current and clearly unambiguous.

At Schneider & Pollock Wealth Management Inc., we follow up with anyone whose registered accounts and TFSA is left to their Estate to confirm that is their wishes. We follow up until we have a definite answer. Going forward, we also plan to confirm beneficiary information each with client annually. Please contact us at info@schneiderpollock.com to discuss your beneficiary information.

-written by Jeff Pollock