Naming Beneficiaries: What You Can and Can’t Do Outside of a Will

Recently, a client came to our office distressed after discovering her late father’s RRSP had gone to his ex-wife instead of his current family. Despite having a recently updated will that left everything to his children, he had never changed the beneficiary designation on his RRSP after his divorce 20 years ago. This situation, while heartbreaking, is far more common than you might think.

Many Manitobans are surprised to learn that a will doesn’t control all their assets. In fact, several important financial accounts have their own beneficiary designations that operate independently of—and can even override—your will. Understanding how these designations work could save your loved ones from significant stress and potential financial loss.

Beyond the Will: Your Other Estate Planning Tools

Think of your estate plan as a puzzle, with your will being just one piece. Another crucial piece is the beneficiary designations on your financial accounts and insurance policies. These designations allow certain assets to bypass your estate entirely and go directly to your chosen beneficiaries.

Your RRSPs, TFSAs, and life insurance policies all allow you to name beneficiaries directly on the accounts. The same goes for pension plans and segregated funds. This feature isn’t just convenient—it can offer significant advantages for your estate.

When you name beneficiaries directly on these accounts, the assets can transfer quickly and privately to your chosen recipients without going through probate. This means your loved ones could receive these funds within weeks of your passing, rather than waiting months or even years for your estate to be settled.

The Hidden Risks of “Set It and Forget It”

Here’s where things often go wrong: Many people name their beneficiaries when they first open an account and then never think about it again. Life moves forward—marriages, divorces, births, deaths—but those beneficiary designations remain frozen in time unless you actively change them.

Consider this scenario: You open a TFSA in your thirties and name your sister as the beneficiary. Years later, you marry and have children. If you forget to update that TFSA beneficiary designation, your sister—not your spouse or children—would receive those funds when you pass away, regardless of what your will says.

The Tax Implications You Can’t Ignore

Beneficiary designations aren’t just about who gets what—they can have significant tax implications too. This is particularly important for registered accounts like RRSPs and RRIFs.

For example, naming your spouse as the beneficiary of your RRSP can allow for a tax-deferred rollover, potentially saving thousands in immediate tax liability. However, naming adult children as beneficiaries might result in your estate facing a substantial tax bill in the year of your death.

Creating a Coordinated Plan

The key to successful estate planning is coordination. Your will, beneficiary designations, and other estate planning tools should work together like a well-orchestrated symphony, not compete like rivals in a talent show.

Start by listing all your assets and checking their current beneficiary designations. Look for:

• Potential conflicts with your will
• Outdated designations that don’t reflect your current wishes
•  Missing alternate beneficiaries
• Tax-efficient distribution strategies

When Life Changes, Your Plan Should Too

Major life events should trigger a review of your beneficiary designations. These include:

• Getting married or divorced
• Having children
• Experiencing the death of a beneficiary
• Moving to a different province
• Starting a business
• Retiring

Don’t wait for a crisis to review your plan. Schedule regular check-ups, just like you would for your health or your vehicle maintenance.

Special Situations Need Special Attention

Some situations require extra careful planning with your beneficiary designations. If you have a blended family, own a business, have beneficiaries with special needs, or have assets in multiple jurisdictions, it’s particularly important to get professional advice to ensure your designations align with your overall estate planning goals.

Taking Action Today

Need help reviewing your beneficiary designations or creating a comprehensive estate plan? Contact TLR Law to schedule a consultation. We’ll help ensure your wishes are properly documented and your loved ones are protected.

Remember, the smallest oversight in estate planning can have major consequences. Don’t let an outdated beneficiary designation undo your careful planning. Take control of your legacy today.