How to Update Your Beneficiary Designations With Banks and Insurers

Many of the largest amounts a person leaves behind never pass through a will. Life insurance and registered plans pay out to whoever is named on a form held by the insurer or institution. If that form is out of date after a marriage, separation, death or birth, the money may go somewhere you never intended.

This article explains how designations generally work in Ontario, how to change them account by account, and how to check the change was actually recorded. Details vary by institution and contract, so treat this as a guide to what to ask, not a replacement for your own paperwork.

Start by listing every account that has a beneficiary

Before changing anything, find out where designations exist. Beneficiary forms are often signed years earlier and forgotten, so a full list is the first practical step.

• Individual life insurance policies and any group coverage through work
• RRSPs, RRIFs, pensions and similar plans
• First home savings accounts, if you hold one
• Bank accounts or investments where a joint holder or named person may receive the money
• Any old policy or plan from a previous employer

If you cannot find a form, contact the insurer or institution and ask what designation is currently on file. They can usually tell you who the account holder is able to see, even if you no longer have a copy.

Life insurance: how the change works

A life insurance beneficiary is the person named to receive the death benefit. If more than one is named, the insurer divides the benefit in the proportions the policyholder assigns. Under the Insurance Act, you designate a beneficiary in the contract or by a declaration, and you may alter or revoke that designation by a declaration, subject to the rules on irrevocable designations.

The most important question is whether the existing beneficiary is revocable or irrevocable. A revocable beneficiary can be changed at any time without telling them, while for an irrevocable beneficiary you must have their written permission first. An irrevocable designation is made in the contract or by a declaration filed with the insurer at its head or principal office in Canada during your lifetime, and after that you cannot alter it without the beneficiary's consent. If the filing requirements were not met, the designation has the same effect as if it had not been made irrevocable.

If you want a trustee to look after money for a beneficiary, such as a child, the Insurance Act lets an insured appoint a trustee in the contract or by declaration and later alter or revoke that appointment by declaration. Whether an earlier designation was irrevocable is worth confirming with the insurer before you rely on a change.

Registered plans: RRSPs, RRIFs and pensions

Under the Succession Law Reform Act, a plan participant can designate a person to receive a plan benefit on death, either by a signed instrument or by will. A designation in a will is effective only if it expressly relates to a plan, generally or specifically. This applies to RRSPs, RRIFs, pensions and similar plans.

Because tax treatment can turn on who is named, think about the relationship of the person you choose. For a RRIF, the annuitant is treated as having received its fair market value just before death, unless a spouse or common-law partner becomes successor annuitant, in which case there is no deemed receipt. A qualifying survivor is a spouse or common-law partner, or a financially dependent child or grandchild. For a first home savings account, only a survivor, meaning a spouse or common-law partner of the holder immediately before death, may be designated successor holder. Check the exact rules for your account with the institution and an accountant.

What each type of account usually needs

If a beneficiary is a minor and no trustee is named, amounts over $35,000 are paid into court or to a court-appointed guardian of property, while under $35,000 the money can go to the parent or lawful custodian, who holds it until the child turns 18. If a trustee is named but there are no trust terms, the trustee may only hold and invest the money until the child turns 18. These outcomes are often not what people expect, so consider the trustee wording carefully.

Why leaving a blank or outdated designation causes trouble

• If no one is named on a life insurance policy, the benefit defaults to the policyholder's estate.
• If the estate is the beneficiary, the benefit is distributed under the will and can be subject to estate taxes and creditors' claims, whereas naming individuals keeps it away from both.
• If a named beneficiary dies before you and the contract makes no other arrangement, the share is payable to the surviving beneficiary, or to the surviving beneficiaries in equal shares if there is more than one. What happens if no beneficiary survives depends on the contract and is worth confirming with the insurer.
• Life insurance paid to a named beneficiary is described as a one-time, tax-free payment, and beneficiaries generally owe no income tax on the death benefit.

An out-of-date name is a common source of disputes after death. A form signed years ago for a former partner can still decide who is paid.

What to do next: confirm the change was recorded

• Ask the institution for its current form and complete it exactly as instructed, including any signature and witness requirements
• Name each person with their full legal name, and state each share clearly if there is more than one beneficiary
• Keep a copy of what you signed and note the date you submitted it
• Request written confirmation or a policy or account statement that shows the new beneficiary
• Ask whether any earlier irrevocable designation or consent is needed before the change takes effect
• Review your designations after any major life event, and check them against your will so they do not conflict
• Tell the person managing your affairs where the documents are kept

If the situation involves an irrevocable beneficiary, a separation, a minor, or a person with a disability who receives benefits, speak with a lawyer before signing. The wording of a designation can affect taxes, benefits and who ends up in a dispute.

Frequently asked questions