Updating Beneficiaries on RRSPs, RRIFs and Insurance in Ontario

A marriage, a new child, a separation or a death can leave the names on your RRSP, RRIF or life insurance out of date. These accounts often pass outside your will, so the paperwork you filed years ago may decide who is paid, whatever your will now says.

This article explains in general terms how designations work in Ontario, what makes a change risky or ineffective, and what to check after a life event. Your plan documents and policy wording matter a great deal, so a lawyer can confirm how the rules apply to you.

Why the designation matters more than you might expect

A beneficiary designation is an instruction to the insurer or plan issuer about who receives the money. When it is valid, the money goes to that person directly rather than through the estate. That is why it needs to stay current.

There is also a cost angle. Jointly owned assets that pass automatically to the surviving owner, and RPPs, RRSPs, RRIFs and TFSAs with a beneficiary designation, are excluded from the estate value used for Estate Administration Tax. For estates that go to probate, no tax is payable on estates of $50,000 or less, and above that the tax is $15 for every $1,000 (or part thereof) of the estate's value. If no probate certificate is applied for and issued, no Estate Administration Tax is due.

Changing a life insurance beneficiary

Under Ontario's Insurance Act, an insured person may designate themselves, their personal representative or a beneficiary to receive the insurance money, either in the contract or by a declaration. In practice, that means the change should be made in a way the Act recognizes, not just mentioned informally to a relative or an agent.

Wording matters. A designation of 'heirs' or 'estate' is deemed to designate your personal representative. That can send the money into the estate rather than directly to a family member, so choose the wording on purpose.

Revocable and irrevocable designations behave very differently, as the table shows.

If you try to make an irrevocable designation in your will, it takes effect only as a revocable one. If you named someone irrevocably years ago, check the policy before assuming you can switch the name.

RRSPs, RRIFs and TFSAs

How a designation on an RRSP or RRIF is made or changed depends on your plan documents, so it is worth confirming the process with the issuer. Ask it which form it requires and how it confirms receipt. Policies differ, and a lawyer can help if the plan documents are unclear.

TFSAs add one more choice. A successor holder is the survivor named as the new holder of the TFSA, in the contract or in the will, and on death becomes the new holder and owner, with the account continuing. A designated beneficiary instead receives the account's value. These are different outcomes, so check which one your account is set up for.

Tax is a separate question from who is named. A deceased person is considered to have sold all their property just before death, and any gain or loss is reported on the final return rather than by the beneficiary. Property transferred to a surviving spouse or common-law partner who is resident in Canada at the time of death can avoid a gain or loss on the final return, and it generally must vest in that person within 36 months of death. An accountant can explain how this applies to your plans.

Mistakes that can make a change fail or cause a dispute

• Relying on your will for something the plan or policy governs. A will and a designation are separate instructions, so confirm which one controls each asset.
• Assuming a divorce updated everything. The Succession Law Reform Act revokes a gift to a former spouse, and their appointment as executor or trustee, after divorce unless the will shows a contrary intention. That rule is about wills, so do not assume it fixes a designation.
• Writing 'estate' or 'heirs' without meaning to, which is treated as naming your personal representative.
• Trying to make an insurance designation irrevocable in a will.
• Unclear or misspelled names. Courts look at what you intended, and a doubtful designation can lead to a dispute and delay.
• Never filing a new form. An intention you told a family member about does not replace a valid designation.

If there is real doubt about who should be paid, an insurer that admits liability may apply to court to pay the insurance money into court. The grounds include adverse claimants, an entitled person whose whereabouts are unknown, or no one who can give a valid discharge, and the application can be made after more than 30 days from when the money became payable.

Courts also apply a public policy rule that a criminal should not profit from their crime, so a person who kills their spouse cannot obtain the spouse's life insurance proceeds. Exceptions exist, including a finding of not criminally responsible because of mental disorder and an innocent beneficiary when the insured dies accidentally while committing a crime. These cases turn on their facts.

What to do next

• List every policy, RRSP, RRIF and TFSA you hold, and the beneficiary or successor holder currently on file for each.
• Ask each insurer or plan issuer for a copy of the current designation and for its process and form for changes.
• Decide whether each insurance designation should be revocable or irrevocable, and check any older policy for an irrevocable one.
• Check names, spelling and relationships against official identification.
• Make sure your will and your designations do not contradict each other, and keep a copy of every confirmation.
• After a separation or divorce, review each designation directly rather than assuming it has changed.
• Ask a lawyer to review the documents if a large policy, a blended family, a separation or a dependent with a disability is involved.

Frequently asked questions