What Does Beneficiary Mean? A Plain-Language Guide for Ontario

You may have just opened a letter, a will or an insurance document and seen the word beneficiary. It sounds technical, but the idea is simple, and knowing which kind of beneficiary you are will tell you what to expect and who to deal with.

This guide explains the word in everyday terms, shows the common Ontario examples, and points out where the rules differ depending on the document that names you.

The simple definition

A beneficiary is a person (or a charity or other organization) who is named to receive a benefit when someone dies. The benefit might be cash, a house, a share of what is left after debts are paid, life insurance money or the value of an investment account.

The person who leaves the gift is often called the deceased or, in a will, the testator. The person who handles the paperwork is the estate trustee, sometimes still called the executor. Estate trustees carry out the wishes set out in the will, wind up the deceased's affairs, pay taxes, bills and other debts, and then distribute the estate according to the will.

Common examples of beneficiaries in Ontario

The word shows up in several different documents. The same person can be a beneficiary in more than one of them, and each document follows its own rules.

A TFSA shows why the exact label matters. A successor holder is the survivor named as the new holder of the TFSA, in the contract or in the will, and becomes the new holder and owner immediately, so the account continues. A designated beneficiary instead receives the account's value.

How insurance and estate beneficiaries differ

Under the Insurance Act, a person insured can name themselves, their personal representative or a beneficiary to receive the insurance money, either in the contract or by a declaration. If the designation says "heirs" or "estate", it is treated as naming the insured's personal representative.

A designation can sometimes be made irrevocable, meaning it cannot be changed without the beneficiary's consent. That must be done in the contract or by a declaration filed with the insurer during the insured's lifetime, and a purported irrevocable designation in a will takes effect only as a revocable one.

If there is doubt about who should be paid, an insurer that admits liability may apply to court to pay the money into court in specified situations, such as competing claimants or an entitled person whose whereabouts are unknown.

What rights does a beneficiary have?

When you are paid depends on the document and the estate, and estate beneficiaries do have some protections. Estates are still presumed to be wrapped up within one year of death, often called the executor's year, although for a complex estate expecting that to happen may be unreasonable.

• Notice of probate: a person applying for probate must send or give a copy of the application form to everyone entitled to a share of the estate, before filing with the court.
• Extra notice for some beneficiaries: if a beneficiary is a minor or an incapable adult, the application may also need to go to the Office of the Children's Lawyer and the Office of the Public Guardian and Trustee.
• A review of the accounts: anyone who appears to have a financial interest in the estate may ask the court for an order requiring the estate trustee to pass accounts.
• Objections: when accounts are being passed, the court decides only the issues raised in filed notices of objection.

Not every gift in a will survives. For example, if a person who witnessed the will, or that person's spouse, is a beneficiary, that gift is void, although the rest of the will stays valid. There are exceptions, such as where two other independent witnesses also signed. And unless the will shows a contrary intention, a gift to a former spouse is revoked after divorce.

Tax and benefits: what a beneficiary should know

The CRA lists most gifts and inheritances among amounts that are not reported or taxed. Taxes on the deceased's property, such as capital gains, are reported on the deceased's final return rather than by the beneficiary.

Income that an estate earns after death is different. An estate uses a T3 slip to report income it allocates to beneficiaries, and in most cases those amounts are included in the beneficiary's income. Non-resident beneficiaries receive an NR4 slip instead.

If you receive ODSP, an inheritance has to be reported to your caseworker, including one you expect to receive. The recipient and each family member can receive up to $10,000 in total in a 12-month period from gifts, inheritances, trust and life insurance payments and lottery winnings without affecting income support, but amounts above $10,000 count as income in the month received, unless they are used for an approved disability-related item or service. Rules for trusts and inherited property differ, so ask before you act.

What to do next

• Find the document that names you and note exactly what it says: will, insurance contract, or account designation.
• Ask the estate trustee or institution what your role is and what timing to expect.
• Keep copies of any notices, applications or letters you receive.
• If you receive ODSP, tell your caseworker about any inheritance you receive or expect to receive.
• Speak with a lawyer or accountant if the wording is unclear, if you think a gift has been left out, or if you are unhappy with how the estate is being handled.

Frequently asked questions