Beneficiary Designation Review

Your Beneficiary Forms Can Override Your Will

Most people assume their will controls where everything goes when they die. It doesn't. Assets with a named beneficiary — RRSPs, RRIFs, TFSAs, IRAs, 401(k)s, life insurance policies, and many pensions — pass directly to the named beneficiary on death, outside the will and outside probate. The will has no authority over them in most cases. That is exactly why beneficiary designations are so useful: the money moves quickly, privately, and without probate fees. But it is also why an outdated form is one of the most expensive mistakes in estate planning, because a stale designation quietly beats whatever your carefully drafted will says.

The classic disaster is the ex-spouse who is still named on a life insurance policy or retirement account years after the divorce. Some jurisdictions automatically revoke a spousal designation on divorce, but many do not — and US retirement plans governed by federal ERISA rules follow the plan document, so a named former spouse can collect a 401(k) regardless of state law or the current will. The same trap catches deceased beneficiaries with no backup named, which sends the asset tumbling back into the estate and through probate, defeating the entire purpose of the designation.

Conflicts, Minors, and the Wording That Decides Who Inherits

Because designations override the will, the two documents must be read together. A will that leaves everything equally to three children, paired with an RRSP or IRA that names only one of them, means that one child receives the account on top of an equal share of everything else — a lopsided result and a frequent trigger for family litigation. Reviewing designations and the will side by side is the only way to confirm your overall plan actually distributes as you intend. Pensions add another layer, since many have mandatory survivor benefits for a spouse that cannot simply be signed away.

Naming a minor directly is another avoidable mistake. Children under the age of majority cannot legally receive or manage a large sum, so the money may be locked under court supervision and then released as a lump sum at 18 or 19 — rarely what a parent intends. Routing the proceeds through a trust (a dedicated trust or a testamentary trust in the will) keeps the funds managed until the child is older. Finally, the wording 'per stirpes' versus 'per capita' decides what happens when a beneficiary predeceases you: per stirpes sends that share down to the beneficiary's own children, while per capita splits it among the surviving named beneficiaries. Leaving that choice blank lets the institution's default decide for you.

The Tax That Rides Along With Registered Accounts

Not every inherited dollar is equal. In Canada, an RRSP or RRIF is taxed as income on the deceased's final return unless it rolls over to a spouse, common-law partner, or a financially dependent child — yet the account itself often passes straight to the named beneficiary, who receives the full amount while the estate is left holding the tax bill. Naming a non-spouse on a registered account can therefore shift the tax burden unfairly onto other heirs. A TFSA behaves differently: it passes tax-free, and naming a spouse as 'successor holder' keeps its tax-sheltered status intact.

In the United States, traditional IRAs and 401(k)s are pre-tax, so beneficiaries pay ordinary income tax as they withdraw, and the SECURE Act now forces most non-spouse beneficiaries to empty an inherited account within ten years — potentially pushing them into higher brackets. A surviving spouse can roll the account over and defer; a Roth passes income-tax-free but still carries distribution rules for non-spouse heirs. The lesson in both countries is the same: who you name changes not just who inherits, but how much tax they and your estate ultimately pay, so designations deserve the same care as the will itself.

Related: Wills & Estates Wizards · All Wills & Estates Wizards · Will Drafting Readiness · Estate Tax Check · Power of Attorney · All Legal Wizards