Real Time Web Analytics

Wednesday, February 11, 2015

If a will states equal distribution, is an asset with a named beneficiary included in the equal share?

How does an asset with a named beneficiary affect the will's instruction that the estate should be divided equally? This is a question that I hear very frequently, so I thought many of you would be interested in hearing the answer to it. Recently a reader sent me the following note:

"If a will states equal distribution, but some of the assets list a beneficiary who is one of the estate recipients, is that amount included in their share?"

The simple answer is no, this is not part of the equal share.

The reason is that the will divides assets that are part of the estate, and not anything that passes outside of the estate, The will covers anything that is in the deceased's name alone.

Any asset that directly names a beneficiary, such as a life insurance policy, RRSP, RRIF, or pension, is not in the estate. It passes directly from the insurance company or bank to the individual who is named as beneficiary and never becomes part of the estate. This kind of asset is not supposed to be shown on the estate inventory, since it's not part of the estate, and probate fees are not paid on it.

Similarly, any property the deceased owned jointly with another person (assuming that other person is still alive) is not covered by the will either.

Because the will only directs equal distribution of what's in the estate, the will has no effect on anything the beneficiary receives directly from other sources.

16 comments:

  1. Any asset that directly names a beneficiary, such as a life insurance policy, RRSP, RRIF, or pension, is not in the estate. It passes directly from the insurance company or bank to the individual who is named as beneficiary and never becomes part of the estate. This kind of asset is not supposed to be shown on the estate inventory, since it's not part of the estate, and probate fees are not paid on it.
    OK..If an adult child gets the RRIF then how is this handled tax wise in the hands of the child ?

    ReplyDelete
    Replies
    1. The normal situation is that the adult child gets the full amount of the RRIF, and the estate pays the tax, even if the estate is being left to someone else.

      However, the will might state that the person receiving the RRIF pays the taxes him/herself. This is rare, but the executor should check carefully for it.

      Also, if there isn't enough money in the estate to pay all the taxes, it is not unheard of for Canada Revenue Agency to look to the child who received the RRIF to pay the shortfall.

      Make sure the executor is working with an accountant so that this is all handled properly.

      Lynne

      Delete
  2. Upon reading the title, I had fully expected the matter referring to a much different situation.

    As the title mentions assets``, I envisioned true estate assets such as a piece of valuable artwork the Will provides to a specific beneficiary, while that same beneficiary is also to share equally in the residue of the estate.

    ReplyDelete
    Replies
    1. I can see what you mean, but in the world of wills and estates, a "designated beneficiary" is one whose name appears on a registered asset, pension, or insurance policy.

      The situation you've mentioned is completely the opposite of what I've said in my post. If the estate is to be divided equally, and one of the beneficiaries is supposed to get something like artwork, it would be normal for that artwork to be part of that person's share.

      In other words, the beneficiary would NOT get the artwork plus an equal share. He would get an equal share, and the artwork would be part of that share.

      Thanks for raising this point, as I'm sure you're not the only person who had that question.

      Lynne

      Delete
  3. Hi Lynne,

    Just to clarify your advice above that insurance payouts go to to the person whose name is on the policy..., is that still the case when the policy is clearly identified in the will and, along with l specific instructs that the money from the policy is be used to off-set expenses? In our situation, the will divides everything equally, and states that the policy payout is to be used for burial costs.

    Thank you
    D.K.

    ReplyDelete
    Replies
    1. It's possible to change the beneficiary of a life insurance policy in your will. This may be the case for your situation, since you said that the policy is clearly identified. It's not the best way to change a policy because it can cause confusion, especially if the insurance company is no longer sure who to pay it to. Make sure you get a legal opinion based on the exact wording of the will, as it may well be a proper change of beneficiary.

      Lynne

      Delete
  4. Will this also include joint bank accounts?

    ReplyDelete
    Replies
    1. Yes, I covered that in the second-last paragraph of the post.

      Lynne

      Delete
  5. My father's will stated his personal belongings were to be divided amongst his daughters (5 of us). The one executor convinced everyone to gift items to avoid taxes etc. My youngest sister was gifted a travel trailer worth about 15,000. The idea is she would sell and divide proceeds, no paper trail. Now they are talking about gifting his vehicle and some cemetery plots. I have a concern about this, should we have something in writing or just sell the items or does this gifting value come off their share of the estate?
    The executor has asked me to give up everything in my house that belonged to my father, but did not ask my siblings to do same. He is not answering my emails and does not communicate with the second executor.

    ReplyDelete
    Replies
    1. To be honest, the executor sounds like a bull in a china shop (to use one of my mom's old expressions). He is going to run into trouble. It's not a matter of "if" but of "when" he screws up this estate. He's acting as if none of the rules apply to him.

      First red flag is not working together with the other executor. It never ends well when one person usurps the legal authority of another person. If the second executor gets upset, this may result in a power struggle that ends up being decided by the courts. The estate would sit in limbo while that was all decided.

      Second red flag is trying to evade the rules. Of course executors want to hold costs down, and so they should. But what is this executor going to do if he gives someone a $15,000 asset and that person refuses to share the proceeds? Especially if the other executor isn't on board and doesn't agree with it. The only thing he could do is make sure that the beneficiary's share is reduced by the amount he/she refused to share, and even that will depend on the wording of the will (more on this below), The first executor could well be on the hook personally for wrongfully disbursing the asset.

      If all of the beneficiaries agree to the "gifting" plan, the executor may be able to do this with impunity. However, it would have to be in writing to protect the executor. By extension, the beneficiaries aren't protected either, because a dispute that makes it to the courts makes everyone pay.

      You didn't say whether the will states that personal belongings are to be distributed equally. Although it's standard for the residue of the estate to be distributed equally, that's not usually the case for personal and household belongings. In fact, the most common wording that I've seen for personal belongings is to divide them among the kids as the kids agree. This is because it's hard to place value on personal items, and also because there may be sentimental value that outweighs the dollar value. You'll have to check the wording of the will to know what your rights are. Unless the will says that the sharing of personal items must be equal, the value of items received might NOT come off a beneficiary's share.

      Lynne

      Delete
  6. A will states that the son is to receive 25% of the deceased person's
    estate and the remainder of the estate is to go to a particular charity. Are both parties considered "residual beneficiaries"?

    ReplyDelete
    Replies
    1. Yes, because they are each getting a portion of the residue.

      Lynne

      Delete
    2. Thanks so much for the response. Wish you practiced
      here in Ontario.

      Delete
  7. There are only 3 beneficiaries named in my father's will. All 3 are listed under the heading, "Specific Bequests". A cousin is to receive a family ring,the son is to receive "20 percent of the estate" and a charity is to receive, "the remainder" of the estate. The executor, insists that the son is a "non-residuary" beneficiary. Is the executor correct?

    ReplyDelete
    Replies
    1. No, the son is entitled to 20% of the residue of the estate, and is therefore a residuary beneficiary. The charity is also a residuary beneficiary.

      Lynne

      Delete
  8. Hi,
    I have a question but don't really know where to put it.

    I own very little but do own my own home and would like to leave it to a local charitable business. It is not a 'registered' charity, but a business that charges those who can pay but will waive fees, reduce them, or delay billing those who simply cannot pay.

    What is the best way to leave them everything (or what little there is)? Should I leave it to the business and name the 2 wonderful women who run it as co-executors?
    Or should I leave it to them personally, both co-executors, with a statement that I would like any money they end up with to go toward helping those who show up in need,
    but if they simply divided it up for themselves I would be fine with that too. Their whole lives will always be that place, and they are so good, whatever they would decide is fine with me.

    I would like to leave them a maximum amount of cash when they are done, and a minimum amount of tax and headache.

    How can I do that? Any suggestions?

    Thanks,
    Barb

    ReplyDelete

You might also like

Related Posts with Thumbnails