When you're thinking about how your investments will eventually pass on to your loved ones here in Ontario. When you invest in a Segregated Fund or a Guaranteed Interest Account (GIA) – both of which are offered by insurance companies – you have some really powerful options for naming beneficiaries that aren't typically available with regular bank accounts or GICs. This can make a big difference for your family down the road.

 

Let's explore the different ways you can name beneficiaries:

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Direct Beneficiary Designation

 

This is the most common and powerful feature of Segregated Funds and GIAs.

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• How it works:

  • You name specific individuals (or charities) directly on the investment contract itself. For example, "My daughter, Jane Smith," or "The Hospital Foundation."

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• Benefits of Segregated Funds and GIAs:

  • Bypasses Probate:

    • This is the biggest advantage. When you pass away, the money goes directly from the insurance company to your named beneficiary, avoiding your estate entirely. This means no probate fees (Ontario's Estate Administration Tax), no delays from the court system, and more privacy.

  • Faster Access:

    • Your beneficiaries usually get the money much quicker, which can be a huge relief during a difficult time.

  • Privacy:

    • Details about who receives the money are kept private, unlike assets that pass through a public probate process.

  • Potential Creditor Protection:

    • In some cases, if you name a "family class" beneficiary (your spouse, child, or grandchild), the funds in a segregated fund may be protected from creditors if you were to face bankruptcy during your lifetime.

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Primary vs. Contingent (or Secondary) Beneficiary

 

This strategy ensures your wishes are followed even if your first choice isn't able to receive the money.

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• Primary Beneficiary:

  • This is your first choice to receive the money. For example, "My spouse, John Doe."

    • If you specify a Named Beneficiary your investment can bypass probate​

    • Listing Estate as Beneficiary will go to the Estate and can be used to fund your Will and all costs that the Executor will need to take care of. These funds will not bypass probate.

• Contingent (or Secondary) Beneficiary:

  • This is your backup choice. If your primary beneficiary passes away before you do, or for some other reason cannot receive the funds, the money would then go to your contingent beneficiary. 

    • Benefit of having a Contingent/Secondary Beneficiary:​

      • This prevents the money from potentially falling back into your estate (and thus going through probate) if your primary beneficiary isn't alive or able to receive it.  It ensures a smooth transition according to your backup plan.​

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Revocable vs. Irrevocable Beneficiary

 

This choice determines how easily you can change your mind about who gets the money.

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• Revocable Beneficiary:

  • This is the most common choice. It means you can change your beneficiary at any time without their permission. If your life circumstances change (e.g., marriage, divorce, birth of a grandchild), you can easily update your designation.

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• Irrevocable Beneficiary:

  • This is a much more serious designation. If you name an irrevocable beneficiary, you cannot change that designation without their written consent. Furthermore, you generally can't make major changes to the policy (like withdrawing money) without their agreement.

    • Why would someone choose an Irrevocable Beneficiary?

      • It's often used when there's a strong desire to guarantee a specific inheritance, perhaps in a second marriage scenario to protect children from a first marriage, or as part of a legal agreement like a divorce settlement to ensure a spouse receives funds. It provides a higher level of security for the beneficiary but significantly limits your control over your own money.

    • Important Note for Ontario:

      • In Ontario, if you name your spouse as a beneficiary, their designation is not automatically irrevocable (unlike in Quebec, where it often is). You would need to specifically state it's "irrevocable" if that's what you intend.

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Naming Your Estate as Beneficiary

 

While the main benefit of Segregated Funds and GIAs is to bypass the estate, you can choose to name your "Estate" as the beneficiary.

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• How Does Naming Your Estate As Beneficiary Works:

  • The funds would then be paid to your estate, as directed by your Will.

• Some Things To Consider When Naming Your Estate as Beneficiary:

  • This defeats the primary advantage of these products, as the money would then be subject to probate fees and delays.

  • However, sometimes this is done strategically, for instance, if you want the funds to be available to pay debts of your estate, or if you have complex wishes for distribution that can only be managed through a Will and a trust established in your Will.

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Key Takeaways for Seniors in Ontario:

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• When you buy a Segregated Fund or GIA, always complete the beneficiary designation form carefully. Do not leave it blank.

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• Review your beneficiaries regularly, especially after major life events like marriage, divorce, the birth of children or grandchildren, or the death of a named beneficiary.

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• Consider using both primary and contingent beneficiaries to ensure your wishes are followed even if your first choice isn't available.

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• Understand the significant difference between revocable and irrevocable beneficiaries before making that choice. Most people choose revocable for flexibility.

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• Always consult with a qualified financial advisor and potentially an estate lawyer to ensure your beneficiary designations align with your overall estate plan and personal wishes. They can help you navigate the specific rules in Ontario and ensure your money goes where you intend, quickly and efficiently.

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To discuss further or for questions of clarification please contact Mark Albert, CEA, EPC at either: 416-659-6655 or 

markalbertpfs@gmail.com.

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Key Concepts Covered On This Page:

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• Beneficiary designation

• Segregated funds

• Guaranteed Interest Account (GIA)

• Estate planning Ontario

• Bypass probate

• Probate fees

• Estate administration tax

• Direct beneficiary

• Contingent beneficiary

• Primary beneficiary

• Revocable beneficiary

• Irrevocable beneficiary

• Creditor protection

• Faster access to funds

• Estate settlement

• Inheritance

• Privacy

• Family disputes

• Will planning

• Ontario beneficiaries

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