The value of naming a beneficiary
The value of naming a beneficiary can be significant. If you name a beneficiary, an insurance company is obligated, under the Insurance Act, to pay any death benefit proceeds to the named beneficiary on record. Having the death benefit proceeds avoid the estate provides many advantages. It can avoid the delays of settling the estate including estate litigation (such as will challenges) and you also bypass probate1 and other estate administration fees. Probate fees will vary by province. Other estate administration, accounting and legal fees could be another five per cent or more depending on the complexity of the estate. What follows is more on the advantages of naming a beneficiary.
Market Risk/Liquidity
Settling an estate can be lengthy, frequently taking months or even years if the will is challenged or there is other estate litigation. Often during this time, the investments are frozen and exposed to the risks of the market (e.g. a market correction). Instead, when a beneficiary is named the death benefit proceeds are usually paid within two weeks of receipt of proper documentation. This puts money in the beneficiary’s hands quickly, to use as they see fit, e.g. pay down debt, make a purchase, reinvest the funds etc. As such, the exposure to market risk is significantly reduced. Furthermore, even having just a portion of one’s estate with an insurance company can provide beneficiaries with much needed cash, alleviating the stress of having to pay any outstanding expenses and incoming bills while they wait for other funds from the settlement of the estate.
Assets not subject to the deceased’s creditors
When assets flow through an estate (which generally occurs when non-registered assets are paid by financial institutions other than insurance companies), they may become vulnerable to the deceased’s creditors. For beneficiaries, this could mean a substantially smaller inheritance. Having the death benefit proceeds bypass the estate offers potential protection from estate creditors.
Control
Clients can use the Annuity Settlement Option to automatically transfer segregated fund proceeds upon death into an annuity and specify scheduled payments for the beneficiaries.
Ease the burden on the executor
While being an executor can be very rewarding, it is also a big responsibility that comes with the risk of personal liability. By having assets dealt with outside of your estate so your executor doesn’t have to manage them, you can ease the burden and reduce the risk for your executor.
Privacy
Bypassing probate also preserves confidentiality as probate is a matter of public record; payments made by insurance companies are generally a private matter2. This can be beneficial to situations where the intention is to keep one’s wishes undisclosed between family members.
When you name a beneficiary with segregated fund contracts and GICs you can keep more of your money in your family.
If you have questions about your investments or beneficiaries, please contact us.
1 The probate process and fees do not apply in Quebec. There is a verification process for non-notarial wills but not for notarial wills.
2 In Saskatchewan jointly held property and insurance policies with a named beneficiary are included on the application for probate but do not flow through the estate and are not subject to probate fees.