Personal Finance

Will Beneficiaries vs Account Beneficiaries

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  • Sep 16th, 2009 7:14 pm
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[OP]
Jr. Member
Jul 18, 2006
196 posts
22 upvotes

Will Beneficiaries vs Account Beneficiaries

These days a lot of financial institutions allow you to designate a beneficiary for an account. In the event of death, what takes precedence: the beneficiary listed on the account, or the last will?
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Sr. Member
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Feb 21, 2009
579 posts
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warrexa wrote: These days a lot of financial institutions allow you to designate a beneficiary for an account. In the event of death, what takes precedence: the beneficiary listed on the account, or the last will?
I am not too sure of the answer, but I think either way this will opens the door for trouble. Why would you not have the same on both?
[OP]
Jr. Member
Jul 18, 2006
196 posts
22 upvotes
By all means, that's certainly the intention. But it could get complicated with first and second beneficiaries on accounts, accounts that are 10-15 years old and forgotten about (from the beneficiary standpoint) and wills that change as a result of life changes (kids, etc.). I was just curious.
Deal Expert
Mar 23, 2009
21168 posts
7551 upvotes
Toronto
I've started making all my account beneficiaries "Estate" and will let the will take care of it. That reminds me, I should go seek out an wills and estate lawyer soon...
Sr. Member
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Feb 21, 2009
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warrexa wrote: By all means, that's certainly the intention. But it could get complicated with first and second beneficiaries on accounts, accounts that are 10-15 years old and forgotten about (from the beneficiary standpoint) and wills that change as a result of life changes (kids, etc.). I was just curious.
yea i can imagine it can get very complicated. you should be reviewing your will regularly so i am sure you'll notice if something is not right.

here is an article on importance of wills and POA includes a free kit
[OP]
Jr. Member
Jul 18, 2006
196 posts
22 upvotes
Found this article in the Globe & Mail. Also read somewhere that the account beneficiary takes precedence over the will, but now I can't find the source.
Deal Fanatic
Jul 1, 2007
8536 posts
1693 upvotes
I believe that for registered accounts the designated beneficiary takes precedence, because when you set a beneficiary then the funds don't even flow to the estate (an advantage in provinces with high probate fees based on estate size) and don't become subject to the will. I think though if your will specifies the specific asset to go to someone, then the will can take precedence.
Member
Oct 25, 2006
219 posts
6 upvotes
EugW wrote: I've started making all my account beneficiaries "Estate" and will let the will take care of it. That reminds me, I should go seek out an wills and estate lawyer soon...
This plan will work if you enjoy giving the government probate fees when you die.
Sr. Member
Jul 27, 2006
678 posts
10 upvotes
Yeah talk to a lawyer. And make sure your designation are done properly; the statutory requirements are not exactly demanding, but better to be safe then sorry.
Newbie
Jul 2, 2008
78 posts
warrexa wrote: These days a lot of financial institutions allow you to designate a beneficiary for an account. In the event of death, what takes precedence: the beneficiary listed on the account, or the last will?
I can only speak for Ontario, but in this province the beneficiary takes precendence. However there are only a few products that allow a benefiary, such as an RRSP and TFSA....and insurance policies. A chequing account doesnt allow for that, but you can as some one the account as joint ownership, where it will go to the other owner upon death
Deal Addict
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Feb 1, 2005
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warrexa wrote: These days a lot of financial institutions allow you to designate a beneficiary for an account. In the event of death, what takes precedence: the beneficiary listed on the account, or the last will?
This depends on what you mean by beneficiary listed in the last will...

If you mean it's just any beneficiary (e.g., residual) under the will, then the account beneficiary takes precedence because, as others have correctly mentioned, the beneficiary designation makes the account pass directly to the beneficiaries and not through your estate (so the estate beneficiaries don't even see the account).

However, your will can also provide for the designation of beneficiaries for certain types of accounts such as RRSPs. This is a much greyer area if the beneficiaries are not the same and you've made designations in both places. It would seem to me that if there is conflict the winning designation would be the one that was made more recently, but you'd need to get legal advice to know for sure :D .
Deal Addict
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Dec 28, 2004
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Burlington
doc50 wrote: I can only speak for Ontario, but in this province the beneficiary takes precendence. However there are only a few products that allow a benefiary, such as an RRSP and TFSA....and insurance policies. A chequing account doesnt allow for that, but you can as some one the account as joint ownership, where it will go to the other owner upon death
+1

As someone said they put Estate. This is probably a bad plan unless you are doing something special/complicated in your estate. (Such as setting up a trust for minors/disabled...although I am not sure if this is a good reason.)

If you have a beneficiary stated on the account they should get that with a lot less fuss. No 1 year escrow. No worrying about if the estate actually has a positive net worth (paying off creditors first) and so on. Or if you do not have a will they get it without a bunch of mess too....
Jr. Member
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Feb 28, 2005
181 posts
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Etobicoke
Just been through the pain of checking this stuff out in detail for RRIFs (in Ont).

Having a beneficiary identified allows avoidance of the probate costs (& time as noted) but also of the associated accounting and legal costs that are usually based on the size of the estate -- so you could be talking up to maybe 5% (in Ont)

For registered plans (RRIFs, RRSPs, TFSAs etc.) an awful lot of this comes down to the actual phrasing and policies of the trust company that is the trustee for the plan. They can all be different.

You need to look at the application form itself and their "change" or "update" forms -- and preferably talk to their estate departments to get a clearer picture.

Some trustees will say if no beneficiary is identified to them, they will then check the will and go by that if the specific plan is identified there -- before redeeming to the estate. Others differ. When there is a difference between the will and the plan, there is no consistent policy -- you need to know what policy is in place with your trustee. (Yes, you can mess around with arguing that a beneficiary stated on a will (and dated later) supersedes the policy information -- but who wants the agro and additional legal costs at the time).

The messy stuff comes when what you really want are primary and alternate (or contingent) beneficiaries. An example of this would be for a husband to want his wife to be his primary (or designated) beneficiary if alive, but otherwise for his 3 children to be equal alternate beneficiaries. (If both parents die at the same time, this can be a problem -- as you would have no time to go and update the plan's beneficiary identification.)

Some places handle this -- many do not -- looking at the app form is a good first guess. Most places handle one and one only primary beneficiary (or at least appear that way on the surface.) But there are places that handle this cleanly -- I think BOM (investorline) had a clear form that allowed identification of primary and multiple alternate beneficiaries.

Lawyers know a lot of the ins and outs of this but won't know the individual trustee's policies -- lawyers will generally want to make sure you designate beneficiaries for these plans as one of the first clauses in the will -- regardless of whatever you state elsewhere.

Most investment advisors also do not know the intricacies of the trustee's policies for the companies they are associated with.

The final kicker is that the trustees can change policies over time --- so you need to follow up.

Most people just open a RRSP or RRIF with an organization because it is associated with a good brokerage (cheap or full-service) or a good investment advisor. Unfortunately the whole ability to get the money out tax-efficiently and as desired is almost totally ignored.

(End saga/rant -- and I won't bore you with the nuances and cost differences between beneficiaries and successor annuitants!)

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