In Ontario, the value of naming a beneficiary can be significant.
If you name a beneficiary, an insurance company is obligated, under the Insurance Act, to pay any death benefit proceeds to the named beneficiary on record.
Because the death benefit proceeds do not pass through the estate, they not only avoid the delays of settling the estate but also bypass probate and other estate administration fees.
In Ontario, probate fees on assets over $50,000 are 1.5 per cent. Other estate administration, accounting and legal fees could be another five per cent or more depending completely on the estate.
Bypassing probate also preserves confidentiality as probate is a matter of public record; payments made by insurance companies are a private matter.
In addition to the general advantages of avoiding probate and other administration fees, potential protection from creditors and the timely payment of a death benefit, segregated fund contracts and guaranteed investment certificates (GIC) also waive all redemption charges when the death benefit is paid.
When assets flow through an estate (which generally occurs when non-registered assets are paid by financial institutions other than insurance companies), they may become vulnerable to the deceased’s creditors.
For beneficiaries, this could mean a substantially smaller inheritance.
Placing assets with an insurance company is one of the easiest and most effective ways to bypass probate and reduce the cost of probate and other estate administration fees.
When you name a beneficiary with segregated fund contracts and GICs you can keep more of your money in your family.
submitted by Manulife Investments Tax, Retirement and Estate Planning Services
