One of the most important decisions you will make when setting up your financial plan is appointing beneficiaries on the various products you own (RRSPs, RRIFs, LIRAs, Life Insurance, etc). Naming a beneficiary or several beneficiaries makes sure the institution you deal with will pay the proceeds to the right people in an expedient manor. The payment of proceeds is paid directly to your beneficiary and therefore by passes your estate saving you time and money. There are different types of beneficiaries; Irrevocable, Revocable and Contingent.
The first type of beneficiary is an Irrevocable Beneficiary. Irrevocable means that the beneficiary cannot be changed without his or her consent. All beneficiary appointments should be made with careful thought and consideration but naming an irrevocable beneficiary is even more so because it is not easily changed. Make sure you and your Financial Advisor go over all the considerations before designating an irrevocable beneficiary. Typically there are documents to sign and submit to the insurance companies head office showing you understand the implications of an irrevocable beneficiary.
The beneficiary appointment that we are most familiar with is the Revocable Beneficiary. With a revocable beneficiary, you can name an individual or several people or an organization as the beneficiary on your contract but because it is revocable you can change it at any time. Every institution has a document for you to name or change your beneficiary. You must fill these documents in and sign them each time you make a change. Remember that divorce doesn’t change your beneficiary on your products nor does re writing your will. Therefore, it’s important to always keep your appointments up to date at all times.
In my 21 years in the insurance and investment world the Contingent Beneficiary is often a forgotten appointment. When it comes to naming a beneficiary, you should always consider making a contingent beneficiary. A contingent beneficiary is an appointment of someone who will receive the benefits of your product if your primary beneficiary dies before you do. An example is naming children with a trustee as contingent beneficiary on life insurance plans. Also, you can appoint adult children, other family members or whomever you chose to receive the proceeds if your primary beneficiary has passes away before you. One very good reason to make a contingent beneficiary appointment is that if the time comes down the road that your primary beneficiary has passed on before you, you might not be in any condition or ability to appoint a new primary beneficiary at that time.
Minor children as beneficiaries
If you are naming a minor child as a beneficiary make sure you also appoint a trustee to receive and manage the proceeds on behalf of the minor child or minor children. Discuss with your Financial Advisor the implications of naming children as beneficiaries.
In conclusion, make sure you appoint beneficiaries when at all possible and that you review them regularly. A change in personal circumstances like marriage, divorce, re-marriage, having children, death of a beneficiary, etc are all triggers to review and change your beneficiary designations. Choosing the right beneficiary can make the transition of your proceeds to the people that you want to receive them happen seamlessly.