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Beneficiary designations are extremely powerful and yet poorly understood.  They are the source of a lot of grief and many estate disputes.

The essence of a beneficiary designation for any ‘plan’ (read – insurance, TFSA, RRSP, RRIF) is that the funds in the plan pass –

  • directly to the named beneficiary;
  • never fall into or form part of the estate of the deceased and are never controlled by the executor or estate trustee;
  • are not governed by the will; and,
  • do not require probate, and no Estate Administration Tax is payable on the value.

The discussion below builds upon these basic features for the purposes of probate and possible disputes.

More information on beneficiaries designations in the context of estate planning and wills is found here.


For probate purposes the key consideration is that funds in a plan that pass by beneficiary designation are not part of the estate.  No probate tax is payable on them.  They are not governed by the will.  The estate trustee should cooperate with the named beneficiary (including providing a death certificate), but it is the named beneficiary’s obligation to obtain the funds directly from the financial institution.

Income Tax Issues

There are no income taxes payable on the proceeds of a TFSA or life insurance for any person (not the deceased, or estate, or the beneficiary).

RRSPs and RRIFs create taxable income for the estate (not the beneficiary) unless the plan is ‘rolled over to a surviving spouse’.  If the funds pass to a named beneficiary who was not the spouse of the plan holder on their death, the estate trustee must include the full value of the plan on death as income in the deceased’s last tax return and pay tax accordingly.

If the estate does not have the funds to pay income taxes arising from the termination of a plan, CRA can pursue the beneficiary who received the funds.  However, the estate trustee does not have a claim against the beneficiary to recover the taxes arising in the estate from the end of the plan.


Pension values are usually NOT included in estate assets for probate purposes (except when the named beneficiary has pre-deceased and their is a final payment, which depends on the plan).

If the pension is not payable to the estate, no estate administration taxes or income taxes are payable by the estate for the termination of the pension and the estate trustee does not control the funds.

Who gets what from a pension depends on the details of the pension plan, and the law.  A survivor benefit of a pension can pass to a designated beneficiary.  However, a designation will be trumped by the Pension Benefits Act and paid to the spouse (married or common law) of the deceased at the time of death.  In this context ‘common law spouse’ means a conjugal relationship of at least 3 years, unless there are children of the relationship.

A separated spouse (whether divorced or not) does not inherit under the Pension Benefits Act but will inherit if they remain the designated beneficiary (a designation made by the deceased before death); an old designation is not revoked automatically by separation or divorce (another good reason to do a new will upon separation).

If the designated beneficiary has pre-deceased, any survivor benefit will be paid to the estate.

Designations to minor children

Designations to beneficiaries who are children under 18 (which are not uncommon for TFSAs) create significant potential issues.  First, as with any gift to a minor, the Office of the Children’s Lawyer must be notified of the potential gift.  Second, if the amount is more than $10,000 for any child, a proper guardianship must be established to manage the funds until the child turns 18.

A parent is NOT automatically the guardian of the property of their own minor child and a court order of guardianship will be required.

Disputes and litigation

The main areas of dispute with respect to beneficiary designations are:

  • For RRSPs and RRIFs the income tax liability that can arise from payment to a non-spouse beneficiary.  The estate must pay the tax, but the beneficiary receives 100% of the value of the plan.  This can be extremely unfair and harsh for the estate.
  • For pensions, whether a common law partner was or was not the “spouse” of the deceased at the time of their death and entitled to inherit.
  • Whether any beneficiary designation has been revoked or changed by a will or codicil (this is possible, but strict rules must be met – otherwise the beneficiary designation will stand).  Note: while there is some flux and uncertainty in the law, most beneficiary designations to financially independent adult children will be upheld even if manifestly unfair as among children of the deceased and even if the tax consequences to the estate are dire.  This contrasts with the situation for ‘jointly owned assets’ (learn more here)
  • For gifts to minors (especially common for TFSA designations, but not limited to them), the need to appoint a guardian for the child.  Guardianship appointments require sophisticated court applications.
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