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Changing Designated Beneficiaries

Beneficially designated property is a type of property in which you can designate an owner in the event of your death. The most common examples of this type of property are life insurance policies, Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs). These are financial instruments wherein you can name a beneficiary to become the owner or receive the proceeds when you die. This type of property is transferred directly to the named beneficiary upon your death and is generally not governed by the terms of your Will.

There are two ways you can make a beneficiary designation:

  1. You designate a beneficiary in the actual policy/pension/account documentation; or

  2. You designate a beneficiary in your Will.

Since there are two ways to designate a beneficiary, there is ample room for confusion. The confusion happens when you make differing designations in your policy/pension/account documentation versus in your Will. However, the law does tell us that the most recent designation revokes any former designation.

Despite what the law says, we do know that in the case of life insurance, insurance companies do not investigate whether there is a more recent designation outside of the policy documentation they have in their possession. Insurance companies, instead, will remit the proceeds of life insurance directly to the beneficiary they see named on the actual policy without reference to any Will that may revoke that designation. It then becomes the job of the most recently named designated beneficiary to go after the person who received the insurance funds.

To avoid any confusion and litigation you should ensure that your designations in your Will (if any) are the SAME as the designations in your life insurance policy, pension(s) and/or account documentation. The lesson is: if you change a designated beneficiary in a life insurance policy, a pension or an account, you need to update any other documentation dealing with that asset to be consistent.

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