Types of Beneficiaries: Residuary, Specific and Contingent in Ontario

If you are reading a will or other estate document, you will see people described in different ways: someone gets a house, someone gets a sum of money, someone gets whatever is left. Each of these is a beneficiary, but they are not all treated the same way when the estate is paid out.

This article explains the common types in plain words, how an estate trustee pays them, and what can change a gift along the way. It is general information, and the wording of your document always matters.

The main types of beneficiary

A beneficiary is simply a person or organization who is entitled to receive something from an estate, a trust, an insurance policy or a plan. The labels below are common ways of describing them. Not every document uses these exact words, so look at what the gift actually says.

How the estate trustee pays each type

A deceased person's property vests in their personal representative, who is also called the estate trustee. The estate trustee holds it as trustee for the people entitled, subject to the deceased's debts. This is why a beneficiary does not simply walk in and take an item. The estate trustee, not the beneficiary, has authority to sell estate property.

In practice, specific gifts are usually handed over once the estate trustee is sure debts and taxes are covered, and the residuary beneficiary is paid last because the residue is only known once everything else is settled. Before distributing property, an estate's legal representative should get a clearance certificate (Form TX19), and without one they are personally liable for the deceased's unpaid tax, up to the value of the property distributed.

When a gift fails or changes

A contingent gift matters most when the first beneficiary is not available. Ontario law has a few built-in rules for this:

• 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. It passes as if it had been made to the people who would take that person's estate.
• After a divorce or annulment, gifts to the former spouse in a will are revoked, and the will is read as if the former spouse died before the testator.
• The same revocation applies where the spouses were separated at the testator's death, as the Succession Law Reform Act defines it, and a separated spouse also loses intestate entitlements. These separation rules are fairly recent, so how they apply to an earlier death depends on the date and is worth confirming with a lawyer.
• A gift to a person who witnessed the will, or to the witness's spouse, is void, although the witness can still prove the will. The gift is saved if the Superior Court is satisfied no improper or undue influence was exercised, or if at least two other attesting witnesses are unconnected to the gift.

A specific gift can also be affected if the property is sold by an attorney or guardian while the person who made the will is incapable. In that case, ademption does not apply: the beneficiary takes an equivalent amount from the residue, subject to any contrary intention in the will.

Beneficiaries outside the will

Some people are beneficiaries without being named in the will at all. A participant in a plan such as an RRSP, RRIF or pension may name a person to receive the benefit payable on death, by signed instrument or by will. A beneficiary designated on life insurance is generally separate from the estate: the money is not part of the insured's estate and is not subject to the claims of the insured's creditors. The exception is a dependant support claim. When a court sets support, life insurance the deceased owned, plan designations and joint accounts are added back to the net estate, so a designated insurance beneficiary can be reached by a support order.

If no living beneficiary or estate is named, the insurance money becomes part of the estate and is dealt with under the will or intestacy rules, together with estate debts. With no will, a spouse with no issue takes everything, and where there is issue the spouse takes the preferential share first. A common-law spouse does not inherit under the Succession Law Reform Act without a will, and their remedy is a dependant support claim.

Children and other special situations

When a beneficiary is under 18, the Office of the Children's Lawyer must be served if the estate trustee applies for a certificate of appointment. Under a will, a child is paid at the age the will states, and with no will the child receives their share at 18.

A beneficiary's share can also be affected after death. If the deceased did not make adequate provision for the proper support of a dependant, the court may order support from the estate, which can reduce a named beneficiary's share. Inheritances and most life insurance payouts after death are generally not reported as income by the person receiving them.

What to do next

• Identify each gift in the document and note whether it is an item, an amount, a share of the residue or a back-up gift.
• Check whether any beneficiary has died, divorced or separated from the deceased, or witnessed the will.
• Look for insurance policies and plans with their own beneficiary forms.
• Note whether any beneficiary is a minor or receives disability benefits.
• Speak with a lawyer if the wording is unclear or someone is disputing a gift.

Frequently asked questions