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Registered Plans: Why Designate a Beneficiary?

As the saying goes, you can't take your money with you. But having a plan in place for the assets you leave behind can give you peace of mind.

 

Illustration of a map with a path to peace of mind.

As a general rule, upon your death, the fair market value (FMV) of your registered accounts is included as income on your final tax return and taxed at your marginal rate. Naming a beneficiary (or beneficiaries) for registered accounts – such as a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) – may enable you to pass on your wealth efficiently and could help lessen the strain on your loved ones. Note: If you are a Quebec resident, you can't name a beneficiary directly on a registered account, but you can set this up in your will.

Let's take a look at some key benefits to naming a beneficiary (or beneficiaries):

Saving time and money

  • Subject to applicable laws, naming a beneficiary means your plan's assets can be transferred directly to your beneficiary without having to wait for your estate to be settled.
  • You may save on probate fees (if applicable) as the value of your account is not included in the fair market value of all of the property you own at time of death. 
  • If your surviving spouse is designated as your beneficiary, the registered assets can be rolled over to the surviving spouse and income tax continues to be deferred.

Estate planning can be complex. For example, naming someone other than your spouse as beneficiary on a registered plan can result in an income tax liability for your estate, so you’ll want to make sure there are funds available to cover the tax. Also, a named beneficiary on your account can override one named in a will.

To avoid conflicts, confusion and potential delays, it's wise to review your beneficiary designations regularly, and whenever major life events occur. That might include marriage, divorce or a death in the family. Consult an estate planner, a lawyer or tax advisor in your province or territory to make sure you've got the information you need.

 

The information provided in this article is for general purposes only and does not constitute personal financial advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.

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The views and opinions expressed in this publication are for your general interest and do not necessarily reflect the views and opinions of RBC Direct Investing. Furthermore, the products, services and securities referred to in this publication are only available in Canada and other jurisdictions where they may be legally offered for sale. If you are not currently resident of Canada, you should not access the information available on the RBC Direct Investing website.

> Next: Who Can I Name as Beneficiary for My Registered Accounts?

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