The Estate Mistake Nobody Can Fix Later
Still working through the QAFP estate material and posting the parts I think are useful. This one is niche, but it is the kind of mistake that only shows up after someone has died, when nobody can fix it anymore.
Your RRSP, your TFSA and your life insurance usually do not pass through your will at all. Whoever you named on the account form gets that money directly. The will has no say, even if the will is newer and says something completely different.
The tax bill does not travel with the money. When you die, your RRSP is treated as though it was fully cashed out on your final tax return. If you named one of your kids on that account, they receive the entire balance, and the tax gets charged to your estate, which means it comes out of whatever everyone else was going to inherit.
Say you have a $200,000 RRSP with your oldest named on it, and your will splits everything else evenly between your three children. Your oldest receives the full $200,000. The tax owing on that RRSP is paid by the estate first, before the other two get anything, and depending on your province and your other income that year it can be a very large number. You thought you divided things evenly. You did not.
Naming your spouse is the exception, and it is why most people never run into this. A registered account left to a spouse rolls over to them with no immediate tax, so nothing lands on the estate.
A divorce does not automatically clear a designation you made during the marriage either. In most of the country the name on that form sits there until you go change it yourself. Quebec works differently, since designations on registered plans generally have to be made in a will there.
It costs nothing to log in and look at who is actually named on your accounts. If your life has changed since you filled those forms out, and for most of us it has, that name might not be the one you would pick today. This pairs with the will post I put up a couple of days ago: one is the document being cancelled, this one is the money that never goes near the document.
When did you last check who is named as the beneficiary on your accounts?
