Types of Beneficiaries in an Ontario Estate Explained

Estate paperwork is full of labels: specific beneficiary, residuary beneficiary, contingent beneficiary, life-interest beneficiary. The labels describe what a person receives and when, and they affect how and when you are paid.

This article explains each common type in plain words and points out rules in Ontario that can change a payout.

The main types at a glance

These categories can overlap. One person may be a specific beneficiary for a gift and a residuary beneficiary for the rest.

Specific beneficiaries

A specific gift is a named item or amount, such as a particular piece of jewellery, a car or a property. What happens if that item is no longer owned when the person dies depends on your situation, so it is worth confirming with a lawyer. There is a rule for one situation, though. If property that was the subject of a specific gift is sold during incapacity, ademption does not apply, and the beneficiary takes an equivalent amount from the residue, subject to any contrary intention in the will.

An attorney or guardian must also not dispose of property they know is the subject of a specific gift in the incapable person's will. The restriction does not cover specific gifts of money, and disposal is allowed where needed to meet the guardian's duties.

Residuary beneficiaries

The residue is what remains once debts, taxes, expenses and specific gifts are dealt with. The person who holds a residuary share is often the one most affected by estate costs, because the amount shrinks if the estate is larger in debts than expected. The estate trustee holds the property subject to the deceased's debts.

Before distributing, an estate's legal representative should get a clearance certificate (Form TX19). Without one, they are personally liable for the deceased's unpaid tax, up to the value of the property distributed. For this reason, residuary beneficiaries may have to wait for the certificate before receiving the final payment.

Contingent and substitute beneficiaries

A contingent beneficiary is a backup. In a will, a gift to the testator's child, grandchild, brother or sister who dies before the testator does not lapse if that person leaves a spouse or issue, and the gift passes as if it had been made to the people who would take that person's estate.

Two other situations remove a beneficiary from a will:

• After a divorce or annulment, gifts to the former spouse are revoked and the will is read as if the former spouse died before the testator.
• If the spouses were separated but not divorced when the person died, whether the gifts are affected depends on when the death happened and on the facts, so it is worth confirming with a lawyer.

A gift in a will to an attesting witness, or the witness's spouse, is void, although the witness can still prove the will. The gift is saved if the Superior Court is satisfied that no improper or undue influence was exercised, and it is not void if at least two other attesting witnesses are unconnected to the gift.

For life insurance, the contingent beneficiary rules are different and are covered in our article on primary versus contingent beneficiaries.

Life-interest beneficiaries and special payout situations

How a life-interest gift works depends on the wording of the will or trust, so it is worth having the document reviewed by a lawyer before you assume what you will receive.

Some beneficiaries face special rules:

• A child: if no trustee is named, a child's share over $35,000 is paid into court and managed by the Accountant of the Superior Court of Justice until the child turns 18. A share of $35,000 or less can be paid to the parent the child lives with, or to the person with lawful custody, who holds the money as guardian of property until the child turns 18. Under a will, a child is paid at the age the will states, and with no will, at 18.
• A person receiving ODSP: if an inheritance is placed in a trust, up to $100,000 is exempt as an asset. A trust where the trustee has absolute and sole discretion is not an asset, but a recipient cannot put their own inheritance into one to avoid the limit.
• A non-resident: estate or trust income paid or credited to a non-resident is subject to Part XIII tax at 25%, which a tax treaty can reduce or exempt.

What to do next

• Read the will or ask the estate trustee which type of gift you are said to have.
• Ask whether the estate has enough to pay all gifts after debts and taxes.
• If you are a minor's parent, a person on ODSP or live outside Canada, get advice before the payout.
• Keep a note of dates, because timing can affect your options.

Frequently asked questions