Divorce doesn't change your beneficiary designations

Today I had a phone call from one of the Scotiabank branches I work with. A customer was dealing with her father's estate. The father's will said that everything he owns should be divided between his two kids. Now here's the problem: when the father got divorced years ago, he didn't change the beneficiary designation on his RRSP. He left the designation as his ex-wife.

The RRSP contained $100,000 and was by far the largest asset of the estate, which was otherwise modest. The customer found out from our branch that not only was the ex-wife going to receive the RRSP, but the rest of the estate was going to be used to pay the tax on it. The kids weren't going to see a dime.

It was at this point that our staffer called me to see if this could possibly be right, since it seemed so unfair. Unfair or not, it is the law. The will didn't change the beneficiary designation on the RRSP. Neither did the divorce judgment. If the father didn't want his ex-wife to receive the money, he should have changed it some time over the years since they divorced. Otherwise the law will presume that he intended to leave her on as beneficiary.

This is not an uncommon situation by any means. I see several estates like this every year. Unfortunately, if this client's father, who made his own handwritten will, had spent even ten minutes talking to an estate planning lawyer, he would have found out that his money would go to his ex and not his kids. He probably didn't realize the importance of changing what must have seemed like a paperwork detail.

All divorced or separated people should realize that nothing automatically changes your beneficiary designations. They don't change unless you take steps to change them. A divorce settlement, separation agreement or Minutes of Settlement that contain standard boilerplate words to the effect that you and your ex won't make claims against each other's estates won't change anything. Receiving money when you're the designated beneficiary is not "making a claim" so this clause doesn't apply.

It's bad enough to lose a parent. Having them leave an estate mess behind is a nightmare. Do your children a favour and find out how the law affects you before you sign a legal document, even if it's one you wrote yourself.