Why you should make estate planning a priority in 2013

Estate planning isn't really about money. Many people jokingly tell me that they haven't done any estate planning because they don't have much of an estate. I understand that not everyone has tons of assets, but what is being missed is that your marriage or divorce, your joint account with your kids, and your insurance policies are all big parts of your estate plan. When you pass away, what assets you do own are going to change hands, and perhaps not in the way you anticipate or would like.

The National Post has a recent article that discusses some of these issues and the way they impact our lives. It makes a lot of sense, and applies to each and every one of us who has a spouse, divorce, children, life insurance policy, RRSP, TFSA... you get the point.  Click here to read the article.

Not knowing this simple tax rule causes problems in estates

I recently dealt with a question from a reader about paying "his portion" of the taxes on a RRIF, which he and another person are going to receive as they are the named beneficiaries of the RRIF. This is something that I hear very frequently, as it's commonly thought that a person receiving an asset must be the person who pays the tax on it. Unfortunately, this is not correct and it causes many problems and disputes in estates where executors don't seek professional guidance.

Let's say that the RRIF in question is worth $100,000, or $50,000 per beneficiary. Let's also say that the tax owing on the RRIF is going to be $30,000, or $15,000 per beneficiary. Plenty of executors (and beneficiaries for that matter) believe that this means instead of getting $50,000 each, the two beneficiaries are going to receive $35,000 each (50,000 - 15,000 = 35,000). This, however, is not the way the tax is paid.

What happens in reality is that each beneficiary receives his or her full $50,000. The $30,000 tax comes out of the estate itself. This means that the tax on the RRIF is paid from the bank accounts, investments, house or other assets owned by the deceased, even if the estate is being left to other people.

This is because the tax on the RRIF is a debt owed by the person who passed away. The RRIF itself is no smaller on the date of death, and so the whole thing must be given to the person(s) named. The law says that debts of an estate are paid from the residue of the estate first, so that's where the payment must come from.

Many people who do estate-planning without legal or tax advice never realize how easily their intent to treat everyone fairly can be upset by their failure to understand this rule. For example, let's say a mother leaves her $200,000 RRSP to her son, and the rest of her estate, which also adds up to about $200,000, to her daughter. She wants to treat them equally and thinks she has achieved this.

What she doesn't realize is that when she passes away, her son will get the whole $200,000 RRSP. The estate will pay the tax on the RRSP. Let's say the tax is $60,000. This means her daughter will receive $140,000. If there are other bills or taxes, the daughter will receive even less. This isn't even close to what the son will inherit, the mother's wishes don't go as planned, and it's quite possible that a dispute will ensue between the son and daughter.

The same rule applies to other assets that give rise to tax when the owner dies. For example, a person who owns rental properties or a lake cottage will also have tax to pay on death, and these taxes are paid out of the estate.

It's possible to draft a will to state that the person receiving an asset should also pay the tax bill associated with the asset, but almost nobody ever does that. I think more people would do that if they were only aware that it was possible. And if they were only aware of the rule in the first place.

Should I designate my children's guardian as the beneficiary of my life insurance policy?

How many times has something blown up in your face, even though it seemed like a good idea at the time? It happens to all of us, and mostly we can live with the consequences. But what if the consequences included leaving your minor children penniless after your death?

Unfortunately do-it-yourself estate planning can have consequences like this - serious, distressing, life-changing consequences that can't be reversed except with an expensive lawsuit and maybe not even then.

I'm attaching a link to a recent blog post by Rania Combes. She's a lawyer in Texas, but the same principles she talks about in her post apply here in Canada. She describes some of the things that can go wrong with a beneficiary designation that on the face of it would seem to make sense.

If you have made designations on your life insurance policy, or are thinking about doing so, this is a good article for you to read. Click here to read it.

Outsmarted by your own estate plan?

A woman recently told me her story, in which her husband recently passed away. He was relatively young and his death was unexpected. What was also unexpected was his will, which left everything to their teenaged son.

This couple had talked about estate planning, and had confirmed their intention to leave their estates to each other. They wanted to leave everything they had to their son when both of them passed away. To help bring about that outcome, the husband and wife owned their major assets jointly, and the husband named her as the beneficiary on his RRSP and life insurance policy.

Then he made a will leaving the estate to his son. It was a home-made will, prepared without legal advice.

I've seen this particular situation many times over the years. The thinking behind it is that if "everything" is already jointly owned or names a beneficiary, there is no need to name the spouse in the will. The husband was outsmarted by his own will, as it by-passed the arrangement he really wanted (leaving it to his wife) and went straight to his second choice arrangement (leaving it to his son).

The majority of the estate assets passed to the wife on the husband's death, as they had planned.

So why is the will a problem? Simply, because not every asset is covered by the joint property and designation of beneficiaries. If you're one of the people who has set things up this way with your spouse and you can't think of any assets that you might have that aren't covered, this doesn't mean there are no such assets. It just means that you aren't aware of them. In the case of the woman I recently spoke to, the husband outsmarted himself by setting up a will that would only have been useful if his wife had died before he did. He thought that was all he needed.

In this case, the husband received a significant tax refund after he died. The refund was obviously in his name only. The wife couldn't deposit it into their joint bank account because the will says that the husband's assets are to go to the son. The bank doesn't want her to open an executor's account based on a home-made will that hasn't been probated. It can't be deposited into the son's account because it isn't made out to him. So far the fight between the bank and the wife has been going on for three months and it's not over yet.

The husband in this case clearly wanted to deal with estate planning. He thought he had taken care of it. He and his wife took the steps they were aware of. Unfortunately those steps weren't quite enough and his wife is paying the price in terms of stress and upset. I really hate seeing this kind of thing, when an hour with a wills lawyer would have alerted this couple to the hole in their plan.

The lesson to be learned? Your will should say what you want, clearly and simply. If you want your spouse to have everything on your death, that's what it should say.

How to screw up your estate planning with one signature

Donna Neff, an estate planning lawyer in Ontario, has written a blog post with one of the best titles I've seen for a long while.

The article very clearly illustrates how easy it is to make a mistake with estate planning. In Ms. Neff's example, a client created the very situation he wanted to avoid with one signature. Thank goodness he showed her the paperwork so that she could explain what would happen, giving him time to fix it.

What can we learn from this article? When you're getting a will made, take all of your paperwork with you to see the lawyer. By this I mean life insurance documents, pension paperwork, property titles, account statements, etc. There is absolutely no point making a will that says one thing if you have other paperwork that directly contradicts it. Your lawyer should help you to make sure that everything works together to achieve what you want.

Click here to read Ms. Neff's blog post.

Should I designate a person or my estate as beneficiary?

You readers come up with great questions for me, there's no doubt about that. And I do my best to answer as many as I can! Here's one about beneficiaries that I know many people would like to know more about.

The question:

"It would seem to me that naming a person as a beneficiary instead of an estate would be the easiest and fastest route for distribution. Is there some benefit that I can't see to naming an "estate" as a beneficiary?"

There are very good reasons for naming your estate as beneficiary rather than an individual person. But it all depends on what the asset is, who the person is, and the estate set-up as a whole. In other words, there is no one right answer for everyone and you have to figure it out differently for each person. But here are some things you may not have thought of:

Let's look first at RRSPs and RRIFs. If you have a spouse, you will probably name your spouse as beneficiary to take advantage of the tax rollover. But if you don't have a spouse, who do you name? Many people at that point name "all my kids". In a lot of cases, they might be better off naming the estate. For one thing, there is no tax advantage to naming your children because there is no tax rollover (except in certain circumstances where the child is handicapped). Secondly, most people leave their estates to their children, and say that if the child has predeceased, the child's children get the child's share. This won't happen to money in an RRSP if a child predeceases you. It will be split among the remaining named children and none will go to your deceased child's children.

Also, if you leave your RRSP to one of your children, that child will get the full RRSP value and the tax on it will be paid by whoever is inheriting the rest of your estate, presumably your other children.

Now let's look at real estate. Having your spouse on the title to your home so that they inherit the home makes perfect sense in the majority of cases. However, many people do what they think of as estate planning by putting one or more of their children's names on their homes and cottages so that there is no need to go through probate. I can't even begin to describe the number of ways in which this backfires. Confusion, delays, lawsuits, tax issues, fights between siblings - all of this and more happens when you try to bypass probate this way. It's such a bad idea I can't believe anyone still does it.

Next, life insurance. There are plenty of good reasons to name individual beneficiaries of life insurance policies, and I don't argue with any of them. However, sometimes there are reasons to name your estate to receive the life insurance funds. One of the main purposes is to create some cash in your estate to pay for taxes. Having money for taxes could be the difference between having to sell something inportant, such as the family cottage, and keeping it. Having cash in the estate will pay for funeral expenses, pay off debts and allow all beneficiaries to receive a larger inheritance.

Also keep in mind that when you leave life insurance or RRSP to a child, they will inherit it all when they reach age of majority. You may or may not think that that's a suitable age for someone to receive a large sum of money.

As you can see, there are many ways for a person to deal with any particular asset. Sometimes naming an individual as the beneficiary of an asset is exactly the way to go, and sometimes it's not. The best way to get advice about this is to sit down with an estate planning lawyer and look at that asset together with all the rest of your assets in the context of your family and your goals. Make sure it all works together.

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.

Using beneficiary designations to avoid probate? Be smart about it

I get the feeling that when estate planning lawyers such as myself say that it's dangerous to try to avoid probate without understanding the full implications of what you're doing, people aren't really listening. They somehow suspect that things will be okay for them no matter what we doom-and-gloomers say. Unfortunately for the families of those people, it truly is sometimes a bad idea to make "avoiding probate" your first and only estate planning goal.

I really like this article from http://www.legacyplannerblog.com/ because it gives some real-life examples of exactly how it can go wrong. It's also fair about the fact that avoiding probate can work if done properly and in the right circumstances.This article talks about a couple of examples in which individuals named beneficiaries of certain assets, and in the process messed up their own estate plans. Click here to read the article.

What's in an estate anyway?

A reader has asked another good question, this time about what is in an estate, and how the estates of a married couple work together. Here's the question:

"Just how is an 'estate' is defined? Is it the assets and liabilities held by a couple, or by an individual? When the first of my parents passes away, will it be necessary to 'execute' the estate, or will this only happen when the second of them is gone? Their only property (their home) is of course held by the two of them together. It seems a bit ridiculous to have to go through the entire process of executing an estate twice."
Each individual has an estate, which holds all of the assets owned by that individual, as well as his or her liabilities. Sometimes, though, ownership depends on other people, so the individuals can't be completely separated. You have to understand how assets are owned and the effect of the type of ownership.

What does one half of a couple actually own? Let's say the husband jointly owns the home with his wife. He has a life insurance policy that names her, and a RRIF that names her. His bank account is joint with hers. Yes, he owns those assets during his lifetime, but none of them would be included in his estate if his wife were alive. The house and bank account would go to her by right of survivorship, so are not part of the estate. His RRIF and life insurance policy have a direct beneficiary named so they don't form part of the estate either.

How different the situation would be if the same man had the same assets but his wife had already passed away. With no joint owner any more, the house and the bank account are in his name only and are now part of his estate. With no surviving named beneficiary, his RRIF and life insurance would pay to his estate.

Most couples will intentionally set up their financial arrangements to ensure that when the first one of them dies, the other automatically receives assets either by joint ownership or by beneficiary designation. It's significantly more complicated in a blended family of course. If things are properly set up, it's not necessary to deal with the estate when the first one of the couple dies. In fact, there usually is no estate. Only on the death of the second half of the couple does it become necessary to deal with an "estate".

To achieve this proper set-up, the couple must have wills and powers of attorney. They must consult a financial planner, banker, or estate planning lawyer to ensure that they've properly named their beneficiaries on RRSPs, RRIFs, life insurance policies etc. All aspects of their finances must work together.

Can a suicide note override the deceased's will?

This question was recently asked of me by a reader. It's not a situation we see very often - thankfully - but neither is it unheard-of for a suicide note to leave assets to someone.

Can a suicide note override a previous will? The short answer is yes, it can, though it's not always going to be the case. In law things are never simple. The circumstances surrounding the note and the assets, as well as the note itself, should be examined carefully. Most likely the decision about the validity of the note will be made by the courts.

Possibly the first questions to be answered are whether the note was actually left by the deceased (as opposed to someone else) and whether it was intended to be found, read, and used in this manner.

Many provinces in Canada, but not all, allow for handwritten wills and codicils. This law is intended to allow individuals to write up their wishes without witnesses, and using their own words. Assuming the suicide note was made in one of these provinces, that is one hurdle cleared.

The words used, though they might be the deceased's own, still matter. Generally speaking any change of beneficiary must be clear enough to identify the specific asset in question. It seems highly unlikely that the writer of a suicide note is going to take the time to search out account numbers or policy numbers, but saying something like "my London Life insurance" might be specific enough if there is only one policy in existence.

The wording might also have an impact on who is in charge of the deceased's estate. If there was a valid will in place, followed by the suicide note, the note might name a different executor. Again, the language is rarely precise, but it could say that a specific person was to "be in charge of my affairs" or something along those lines.

There are cases in Canada in which the courts have upheld the contents of suicide note and agreed that they change the will. Note that these decisions were made by judges after hearing from everyone involved in the estate, examining the will and the note, and applying the current law. I wouldn't expect any executor or family member on his or her own to make a decision about the effect of a suicide note. These are serious legal matters that affect a lot of people, and I would hope that any such note would be taken to an estates lawyer to be presented to the court.

Which assets does an executor deal with and which are outside of the estate?

This reader has questions about the powers and responsibilities of an executor and trustee, and which assets fall within their control. This information is essential to the estate administration process, so I thought I'd cover it here for all to read.

Here's the question:

"When an estate is probated do all assets fall under the probate or can some things be dealt with before hand such as banks, life insurance and investments and if something needs to be done through probate can we proceed at that time? If the executrix/trustee is not a joint tenant of the house, who is responsible for selling the house? Would it be the joint tenant or the trustee?"

Parts of this question are quite clear to me, though I'm not sure I understand the part about dealing with assets "before hand". I'll get to that, though.

All assets owned solely by the deceased fall into the estate. The two types of property that don't fall into an estate are both mentioned in the reader's question. One type is an asset that is jointly owned by the deceased with someone else. The other type is an asset with a designated beneficiary. These are usually life insurance policies, RRSPs, RRIFs and pensions.

Note that this does not include RESPs, which do not go to the child named in the plan, but stay in the deceased's estate.

If the house was owned by the deceased and a joint tenant, on the death of the deceased the ownership passes to the other joint owner. It would be up to the other owner to arrange for the title to be changed. Please note that where the joint ownership is between generations, such as between a parent and a child, this is THE OPPOSITE. Joint title doesn't automatically go to the child joint owner when the parent dies. The child is deemed in law to be holding the title on trust for the estate, and it's for the executor to deal with.

If the house was not held in joint tenancy but was held just by the deceased alone, it becomes part of the estate and it's the executor's job to sell it or transfer it in accordance with the will. This cannot be done before probate is issued by the court.

I'd like to get into the part about dealing with assets before hand. If the question is whether any of the assets can go out to the beneficiaries before the deceased actually dies, the answer is no. To me that seems starkly obvious but I'm asked the question frequently enough to know that not everyone sees it that way. If the person hasn't died, keep your hands off their assets even if they have named you specifically as beneficiary.

Once the deceased has passed away, the executor should advise any joint owners of the death of the deceased and tell the joint owner it's up to them to change the title. The executor should advise life insurance companies of the death of the deceased, and let the insurance company deal directly with the person named as beneficiary in the policy. The executor should also advise the bank that holds the RRSP or RRIF and let the bank deal directly with the beneficiary who will receive the funds. The executor should co-operate by giving copies of the death certificate etc to allow these other parties to get on with the business at hand. Probate is not required for these transactions.

The deceased certainly can - and should - deal with these assets before death by naming the beneficiaries on the life insurance, RRSP etc. During the estate planning process, joint assets and beneficiary designations are part of the same big picture that includes the will and power of attorney. It all has to fit together.

Anyone with this type of question who lives in Alberta can check out my "Alberta Probate Kit" book, as it covers these topics in much more detail.

Naming the estate as beneficiary

I'd like to talk about this reader question in today's post, as it's something that almost everyone will think about during their estate planning. Here's the question:

"It would seem to me that naming a person as a beneficiary instead of an estate would be the easiest and fastest route for distribution. Is there some benefit that I can't see to naming an "estate" as a beneficiary."


Assets that can be designated as going to a certain beneficiary are RRSPs, RRIFs, LIRAs, segregated funds, life insurance policies, pensions and a few less common assets. Designating a beneficiary means that at the time you buy or set up the asset, you state on the asset itself who is to receive that asset when you pass away. Assets with designated beneficiaries are not controlled by your will, unless they name the estate.


This brings us to the reader's question. Why would someone designate their estate to get the funds rather than leaving them directly to a beneficiary? Keep in mind that there is no right answer for everyone. For many people it's a good idea to name a beneficiary directly, while for others it's clearly advantageous to name the estate. Each person (hopefully with the help of an estate planner) will have to figure out his or her best course.


Let's look at an RRSP or RRIF. As most people know, money goes into these plans without being taxed first, and the tax is paid when the money comes out. When you pass away, the law says you are deemed to have cashed in your RRSP or RRIF, so the entire amount becomes taxable all at once. The only way you can save this tax is to designate your spouse (and in limited circumstances a dependent child) as your beneficiary and roll the plan over to him or her. This usually, though not always, means that designating the spouse is a better idea than naming the estate. If the estate were named as beneficiary, the tax would be payable.


Not every asset carries a tax liability, which gives more flexibility in naming a beneficiary. For example, life insurance policies are not taxable in the hands of the person who receives the funds. And the reader is correct that naming a beneficiary can be simpler. If the life insurance money goes directly to a person rather than the estate then there is no need to get probate just to deal with the life insurance.


However, life insurance is often left to a person's estate. This is not at all unusual because naming your estate as the beneficiary of your life insurance policy is a way of creating more cash in your estate. The estate doesn't have to pay tax on the life insurance money  it receives. Business owners like this because it allows them to leave something in the estate for their children who are not inheriting the family business. Individuals with cottages like to leave insurance money in their estates to pay the capital gains tax on the cottage so that the cottage can be kept in the family. A person with lots of debt or taxes might leave life insurance to cover those debts or taxes. These are just a couple of examples but there are several good reasons to leave life insurance to the estate. 


Estate planning is designed to ensure that all aspects of your financial life - will, business agreement, power of attorney, joint property and designated beneficiaries - all work together to achieve your goals.

Can an attorney under power of attorney in BC change a beneficiary designation?

I'm frequently asked whether someone acting under a power of attorney can change the beneficiary named on a life insurance policy, RRIF etc for the person whose money they are adminstering. The general answer is that they can't, but that is usually the answer cobbled together from a combination of statutes and cases.

Now BC has decided to spell it out and clarify the situation, which is always good. Click here to read an explanation and commentary by BC lawyer Stan Rule.

Ex-wife inherits IRA - OUCH!

As much as estate-planning disasters make me wince in sympathy for both the deceased and the survivors, real-life examples are pretty vivid reminders of what not to do. This story from American lawyer Kyle Krull is one of those awful but instructive ones. Though the story is American, if you substitute "RRSP" for "IRA", the principles are identical here in Canada. Click here to read it (and I highly recommend that you do read it if you have an RRSP or RRIF and have been divorced).

The importance of beneficiary designations

Naming a beneficiary for certain assets is an essential part of your estate planning. It's important to understand how the beneficiary designations will work with your will, your joint property and your intentions. This article from http://www.capitalmagazine.ca/ talks about the types of assets that should have designated beneficiaries, and their importance. Click here to read the article.

Just what are the assets of an estate?

It's important for an executor to have a thorough understanding of which assets are in the estate he or she is trying to administer, for several reasons. The executor has to create an inventory of assets and liabilities, which is sworn to be accurate and filed at the court. Also, the executor is personally liable for errors and negligence, and neglecting to deal with an asset would certainly count as negligence. Also, the executor usually has to answer a lot of questions from beneficiaries who are counting on the executor to be the most informed person in the group.

Some assets cause problems for executors just by their existence, and often the problem has arisen because nobody really understands whether those assets are in the estate or not. So let's try to clear up those misunderstandings.

As a general rule, assets that are held in joint names with a right of survivorship are not in an estate. This is because when the deceased person died, all of his or her right in the property automatically transferred to the surviving joint owner. An executor doesn't have to deal with the jointly owned property if he or she is looking after the estate of the first joint owner and does not have to include it in the estate inventory. All the executor has to do is inform the surviving joint owner of the death, and provide a death certificate.

The exception to that general rule is an asset that is held between a parent and an adult child as joint owners. Now those joint assets are to be considered as being held in trust by the child when the parent dies. Unless there is clear evidence that the parent did in fact want the child to own the joint asset, it must be paid into the estate and looked after by the executor.

If the deceased person owned real estate as a tenant-in-common with another person, the deceased person's share of the real estate is included in the estate.

Another asset that is not going to be part of the estate is a life insurance policy that names a specific person as beneficiary. Again, the executor isn't responsible for looking after this. The executor should let the insurance company know that the policy owner has died and provide a death certificate but after that, it's up to the beneficiary to get the money paid out.

If the insurance policy named the estate as the beneficiary, then it is the executor's job to get the money paid to the estate so that he or she can deal with it.

If the deceased owned assets such as RRSPs, RRIFs or LIRAs that name an individual as the beneficiary, the executor's duty is once again restricted to advising the plan holder (e.g. bank) of the death of the owner and providing a death certificate. If any of these plans name a beneficiary who has already passed away, the funds will be payable to the estate and in that case it's the executor's responsibility to look after it.

Usually the household goods of a married (or common law) person are only included in the estate if the spouse does not survive.

Vehicles, equipment, collections etc that are in the name of the deceased only are included in the estate. In fact, any items of any kind, from land to digital assets, that are owned by the deceased alone are included.

When the executor is preparing the inventory of the estate for filing at the court, he or she must include all assets that the deceased owned on the date of death, even if that asset has been sold or given away on the day in the inventory is done. For example, if Joe owned a car on June 19, the day he died, then his executor sells the car on July 30 and prepares the inventory on July 31, the car should still be shown on the inventory. This is because the inventory is intended to be a snapshot of the deceased's financial situation on the date of death, not on some random later date.

Ex-wife gets insurance funds when husband fails to change forms

The Manitoba case of Chanowski v. Bauer (2010) should remind all of us how important it is to pay attention to detail with estate-related paperwork.

A fellow named James had a group life insurance policy at work worth $55,000. He designated his common-law wife, Janet, as the beneficiary. A few years later, he and Janet split up. Janet married someone else.

James later entered into a new common law relationship with Michelle. James designated Michelle as the beneficiary of most of his work benefits, including dental and medical. He even took out life insurance on the lives of Michelle and their kids. On the life insurance form, James stated that Michelle was his spouse, and filled in everything except the "beneficiary designation" box. In other words, he failed to change the beneficiary from Janet to Michelle.

James died 13 years after he and Janet split up. He was still common-law with Michelle when he died. There is no question that Michelle was his current spouse. Michelle assumed that she would get the life insurance money, but the forms that James signed said to pay it to Janet. The insurance company paid the insurance money to the court (this is standard procedure when it's unclear who gets the money). That left it up to the court to decide.

The judge said that Janet, the first common law, would get the insurance money because James had not made a change of beneficiary. Michelle appealed to the Manitoba Court of Appeal. The higher court agreed with the first judge that the money would go to Janet.

This decision isn't an anomaly by any means. When a person wants to change his or her beneficiary, it's essential that the decision be clearly set out so that when the person is gone, the intentions are there for all to see. In a case like James', it's possible that he intentionally left the box blank so that he could leave funds to Janet.

However, the case does illustrate how thorough and careful you must be when setting up documents that will operate when you're no longer around to explain your intentions.

Can I name my sister as the beneficiary of my RRSP?

As I've said before, the question is never "can I?" when it comes to legal and financial decisions; it is always "should I?"

A reader asked me whether he could name his sister as the beneficiary of his RRSP. To answer this question for a customer, I'd want to know a couple of things first. I'd want to know who else is in the picture that he might name. I'd want to know what other assets were available. And I'd want to know if there was any specific reason for leaving this asset to his sister.

All of these factors work together. One outcome that is affected by the choice of beneficiary is taxation. Money put into RRSPs is not tax-free; it's tax-deferred. That means that the tax is paid when the money is taken out of the RRSP. If the reader names his sister as the beneficiary of the RRSP, tax must be paid at the time he dies and she receives the money. But if he had named his wife, the RRSP could roll over to the wife without any tax being paid.

Let's look at how this affects his estate. If he had an RRSP with $250,000 in it, and rolled it over to his wife on his death, the wife would receive the entire $250,000 and no tax would be paid. If he named his sister, on his death the sister would receive the entire $250,000. However, his estate would have to pay the income taxes on the money, which could amount to as much as 40% of the money.

This means less money for someone else in the estate. If the reader was trying to create an equal distribution among a group of people, say his siblings, he would have accidentally messed up his own estate plan.

There is always the possibility that the reader asking the question doesn't have a spouse, but if he does, he should be aware of the effect of naming his sister rather than his wife.

If the reader's goal is to give some financial help to his sister, there might be another asset that could be given to her with a better tax result. For example, he could leave a life insurance policy to his sister without triggering any tax to his estate.

When making decisions such as who should be named as a beneficiary of a specific asset, the entire estate must be looked at as a whole to make sure one decision isn't adversely affecting another.

Probate fees vs. income tax

Tax is one of the trickiest parts of estate planning, so when I see good information about it, I can't wait to share it with you. Here is a link to an article by Canadian Tax Resource Blog. It compares and contrasts probate fees and income tax with respect to certain assets. In particular, it talks about the effects of naming a beneficiary on an RRSP or RRIF. To add to the advice given in this article, I suggest that you check the tax effects of your beneficiary designation with your accountant or estate planning lawyer.

Can my RRSP be willed?

The answer to this question from a reader will depend on the facts. You may have noticed that pretty much every time you ask a lawyer a question, we ask for more facts!

The main thing to consider is the beneficiary who has been named on the RRSP itself. When you buy an RRSP, you are asked who is to receive the money when you die. You can leave it to your spouse, your kids, another individual, a charity or to your estate. Who you choose always depends on who is in your life and the various tax advantages of each choice.

If you have named a person or charity, when you pass away, the money is paid directly to that person. This means that your will doesn't touch it. If your will says that you leave your estate to certain people, it won't include the RRSP.

If the person you've named dies before you, that's a different story. If they are not alive to receive the RRSP money, it's paid into your estate instead. Once it's in your estate, it's covered by your will.

If you named your estate as the beneficiary, then when you pass away the RRSP money is paid to your estate. Again, once it's in your estate, it's covered by your will.