With the 2015 Federal Budget significantly (and immediately) increasing the amount that
Canadians can contribute to their Tax-Free Savings Accounts
(TFSAs), it's a good time to review your beneficiary
designations on your TFSAs, RRSPs and other registered accounts as
part of your overall estate planning. Here are eight crucial things
to consider about your designations:
There's more than one way
to make a designation. You can designate beneficiaries by
filling out the form that your financial institution or account
trustee has prepared for that purpose. You can also make a
designation in your will or in a separate document and notify the
financial institution after the fact. All of these methods are
equally effective under BC law.
Assets passing to designated
beneficiaries don't go through probate. On death, your
registered accounts pass to your designated beneficiaries directly,
outside of your estate. The distribution of those assets is not
held up waiting for a grant of probate of your will to be issued,
and the assets are not subject to BC probate fees of 1.4%.
A designation protects your
assets. Assets passing to designated beneficiaries are not
subject to claims of creditors of your estate. They are also safe
from any risk of a wills variation claim by a disappointed spouse
You can designate more than
one beneficiary. You can designate several beneficiaries,
and specify the share that each one takes. If you don't specify
the proportions, the beneficiaries will take equal shares.
You can designate alternate
beneficiaries. It's possible, and common, to designate
alternate beneficiaries. For example, you can designate your
spouse, but state that if your spouse does not survive you then
your children or your chosen charities are the beneficiaries.
You can designate a
trustee. If you are designating children under 19 as
beneficiaries, at a minimum you should name a trustee to receive
and hold their share for them until they turn 19. It's possible
to set up longer term and more tailored trust terms for any
beneficiary in a will or trust document drafted by a estates and
Make your spouse a
"successor holder" of your TFSA. If you
designate your spouse as beneficiary of your TFSA, then on your
death the TFSA is collapsed and paid out to them, making future
income on those investments taxable. But if you name your spouse as
"successor holder" of your TFSA, then on your death they
inherit your TFSA contribution room, allowing them to effectively
add your tax-free investments to theirs. Using the right wording
could make an enormous difference to your spouse's tax
liability after your death.
Consider the taxes on your
RRSP. When you die, the value of your RRSP investments are
taxed as ordinary income unless you leave them to your spouse. When
you die with a non-spouse beneficiary named, the related taxes are
paid from your estate assets and not by the beneficiary, unless
your estate is insolvent. Your estate planning should plan for this
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
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