Assigning a beneficiary for your account is really important. If you don’t and you die, your money could get stuck in your estate and caught up with legal fees. But there are different types of beneficiary designations, so make sure you choose the right one – and that it’s up to date.
When you first enrolled in CEIRP and completed the enrolment form one of the things you would have done was designate a beneficiary. But the years do go by and things sometimes change so you might want to take a look at who you have down as your beneficiary.
Take a moment to learn a few facts. Please consult an estate planner for more information.
You can designate your estate, your spouse, children, or other individuals, or associations such as charities. There are 3 different classifications for beneficiaries:
- Preferred
- Primary
- Contingent
Preferred Beneficiary
If the beneficiary is a spouse, parent, child or grandchild, then they are considered to be the “preferred beneficiary”. If you’ve named a preferred beneficiary then the benefit may be protected in the event of bankruptcy or other action by creditors.
Primary Beneficiary
The “primary” beneficiary is the person(s) who is the first choice to receive the funds if you were to pass away. With an RRSP, if your spouse is the primary beneficiary, then the funds can simply be transferred to your spouse’s RRSP if you were to pass away.
Contingent Beneficiary
You may also want to consider naming a “contingent” beneficiary. For example, if you named your spouse primary beneficiary and you both were to pass away at the same time and you had not named a contingent beneficiary, the funds would by default go to each estate, and creditors could make claims against the estates. Naming your child a contingent beneficiary could avoid this.
It’s important to note, however, that potential creditor protection depends on court decisions, which are subject to change and can vary for each province. This is why it’s a good idea to consult an estate planner. If your primary or contingent beneficiary is a minor, you need to name an adult as a trustee to receive the funds in trust for the child.
TFSA— beneficiary or successor holder
Successor Holder
TFSA Legislation allows you to name a ‘successor holder’ who would inherit your TFSA at the time of your death (only spouse or common law partner). Naming a successor holder is effective in ensuring that income earned after your death is not taxed. Your TFSA will not terminate on your death: your successor simply replaces you as plan holder, and the plan will continue with all rights passing to the Successor. This transaction does not impact spouse or common law partner TFSA room.
Beneficiary– spouse or common law partner
A TFSA can be transferred to the beneficiary’s spouse or common-law partner’s TFSA as an exempt contribution before December 31 of the year following death and will not impact their contribution room. Any growth in the TFSA that occurred after death and before the transfer will be taxed as income to the beneficiary.
Beneficiary – other than spouse or common law partner
The TFSA will be collapsed and paid to the beneficiary as cash. For more information about the TFSA, go to https://www.canada.ca/en/revenueagency/services/forms-publications/ publications/rc4466.html.
Quebec Members
Note that if you designate your spouse as beneficiary and do not specifically select the box indicating the beneficiary is revocable, it will automatically be irrevocable. This means that you would not be able to take certain actions on your plan without the irrevocable beneficiary’s written consent – most notably you couldn’t change the beneficiary or request a withdrawal or transfer. Also, due to recent changes in legislation, if your beneficiary is a minor or a person who lacks legal capacity, you should review your options with an estate planner or legal counsel.
