Estate planning: Your will doesn't decide who gets your investments

The one thing your will doesn’t always decide

When it comes to investments, naming a beneficiary may supersede a will

  0

by

Online only.

  0

will

Q: Ed, I have a very specific, detailed wills question. Which document takes precedence over the other? The will written/filed in March 2016, that states: I give, devise, and bequeath all the assets of my estate, both real and personal, of whatsoever kind and whatsoever situate, including any property over which I have a general power of appointment, to my Trustee upon the following terms:

  • To divide among my four nieces (names provided in the will) my articles of personal, domestic and household use or ornament.
  •  To pay or transfer the sum of $x,xxx.xx to each of 3 friends (names provided in the will)
  •  To divide the residue of my estate into equal shares and to pay or transfer one (1) of such equal shares to each of my four nieces (names provided in the will).

(NOTE: Specific assets are NOT identified/listed in the will)

OR

A Designation of Beneficiary Form filed with an investment firm upon the opening of an Investment account in April 2012, where the sole stated beneficiary is one of the three friends named in the (second bullet above) of the will?

—Luis of Milton, Ont.

A: Luis, your question raises conflicts between wills and assets with designated beneficiaries. Normally the last dated and valid beneficiary designation applies.

Designated assets are not usually controlled by the wills. They pass to beneficiaries outside of the will.

Let’s understand how will assets and designated assets are different.

What are designated assets?

Designated assets are normally controlled by a contract. When you buy life insurance, you sign a contract. You tell the insurance company who to pay the insurance money to when you die. This is your designated beneficiary. Some insurance products, like segregated funds, can also have designated beneficiaries.

You can also designate beneficiaries on registered retirement plans and tax-free savings accounts. It is easier to change designated beneficiaries than to change your will.

Assets with designated beneficiaries

You may have a pension benefit. If there is no statutory requirement to leave this to a spouse, you have options. You could designate the benefits to be paid to third parties, like a relative.

If you choose your estate as the designated beneficiary, then the asset is controlled by your will. Your executor then collects the proceeds only after paying all debts and income tax. The asset is distributed by your will.

Normally, your will would not include assets that have designated beneficiaries. There are several reasons for this. Here is an example with a $300,000 life insurance policy.

If this policy is designated to named individuals, payment is often made within 30 days of death. This is important if beneficiaries need money for living expenses.

Life insurance beneficiaries

What if $300,000 of life insurance is payable to your estate? It is then subject to provincial probate taxes and creditors’ claims. Not to mention delays since it can take 8 to 12 weeks to probate wills.

In Ontario, probate taxes on $300,000 are roughly $4,500 plus legal fees for a lawyer. If the investment is payable to the estate, it is subject to creditors’ claims. If the insurance is payable to a designated individual, the proceeds from the policy are safe.

Designated assets are not controlled by a will unless you (a) designate your estate as the beneficiary or (b) you claim the asset is held in trust for the estate.

The terms of the investment contract must be reviewed. My answer to this question may be different.

The person designated as the beneficiary of the investment account may have further problems. This person could be holding the investment on trust terms. They may need to share the gift with those people named in the will. The trust terms, if they exist, will need to be considered.

I always advise clients to keep their designated beneficiaries current. Those entering into separation agreements or divorce need their designated beneficiaries to be tax efficient.

Ed Olkovich is a Toronto lawyer and certified specialist in Estate and Trusts Law

MORE FROM A WILLS EXPERT:

 

Comments are closed.