Three Reasons You Don’t Want to Say No to Designating Your Life Insurance and Savings

Reason 1: Procrastination and Incapacity

Jack and Jill are married with kids. Jack designates his life insurance proceeds, his RRSPs and his Tax Free Savings Accounts (TFSAs) to Jill. They live their senior years happily together and Jill dies at the age of 82. Jack procrastinates, or forgets, to re-designate his insurance and savings so that they go directly to his children equally when he passes away. Two years later, Jack is 84 and has advanced Alzheimer’s, so he can no longer re-designate his insurance and his savings. When Jack dies, at the age of 90, all of his life insurance proceeds and savings revert back to his estate and suffer a potentially massive probate tax.

If Jack had executed a well-planned designation ahead of time, he could have specified that, in the event his wife predeceased him, the insurance and savings would go to his children equally. This would have avoided the probate tax on his life insurance and life savings, which are substantial assets.

Most RRSP and TFSA forms do not let you designate alternate beneficiaries and if they do, it is difficult to specify on them that if a child dies before you, his share goes to his children. Likewise, it is difficult to specify this on most life insurance forms. Consider having your lawyer prepare well-planned designations for your life insurance policies and savings.

Reason 2: A Romeo and Juliette Death

Romeo and Juliette died a tragic death in quick succession to one another. If Romeo and Juliette had designated only each other as beneficiaries on their life insurance policies and savings, then when they both died, their life insurance proceeds and savings would have reverted back to their estates, and suffered a potentially massive probate tax.

Don’t let your life insurance proceeds and savings revert back to your estate in the event of the death of you and your spouse from a common accident. Consider having your lawyer draft well-planned designations ahead of time.

Reason 3: The Kids Are Alright

Want your estate to be available for your kids’ education in the event you die while they are still minors? If so, consider having your lawyer draft well-planned designations for your life insurance policies, RRSPs and TFSAs. Why? Because well-planned designations can include a trust for your children which permits the trustee of the trust to spend money on your kids’ education. Have you already designated your kids directly with the life insurance company? The devil is in the details. Most life insurance forms do not let you draft a well-planned trust. Why would it? Your insurance company is not your lawyer.

Consider having your lawyer draft a well-planned designation and trust for your life insurance policies, RRSPs and TFSAs.