Why it is good to name a contingent beneficiary?

In the world of financial planning, there are two topics no one likes to talk about: death and taxes. Today we are going to tackle both subjects when it comes to RRSP accounts, with a little help from the best lawyer I know, Louise Kim, LLB. I asked her:

Q: Louise, what happens when a person passes away?

A: When a person passes away, the Executor must pay the government a tax called probate fees. The amount paid is based on the value of the estate (for estates exceeding $25,000). However, this tax does not apply to all assets owned by the deceased person. The deceased can structure his or her affairs so that assets flow to named beneficiaries outside of the deceased’s estate so as to avoid payment of probate fees for those assets. For example, let’s say a person names a beneficiary for his or her RRSPs, and then that person passes away; provided the beneficiary is alive, the beneficiary will be entitled to those funds in the RRSP, and no probate fees will be charged to the estate relating to those RRSPs. The same rule applies to TFSAs, life insurance policies and pension plans. It is good idea to also name a contingent beneficiary just in case the first named beneficiary is not alive when the person passes away.

Here are the rules about how probate fees are calculated:

(a) $6 for every $1,000 or part of $1,000 by which the value of the estate exceeds $25,000 but is not more than $50,000, plus

(b) $14 for every $1,000 or part of $1,000 by which the value of the estate exceeds $50,000.

If you or someone you care about would like to increase the probability of achieving your life goals and objectives, then do yourself a favour and make a date with a CFP® who is planning focused, not product driven. Success is simply following a repeatable sequence of predictable actions that can change a known undesirable condition into a predictable, more desirable one.

Our goal is to make sure we address our clients most pressing concerns and to make certain that we do not overlook the details when it comes to your big picture thinking!

Until next time, continue to live for today, but plan for tomorrow!




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Aaron Fransen   CFP® , CHS, CPCA   |   CERTIFIED FINANCIAL PLANNER®, Investment Advisor   |   Suite 203 - 15350 34th Avenue, South Surrey, BC V3S 0X7   |   Tel: 604.531.0022