Did you know?: Registered account beneficiaries (in the case of divorce)

May 24, 2019 | Christos Koutsavakis


The third entry in our Did you know? series stresses the importance of reviewing the beneficiary designation on your registered accounts.

Imagine this scenario: you have been through a divorce and removed your ex-spouse from your will. Did you remember to visit your investment advisor to amend the beneficiary designations on your registered accounts such as RRSP, RRIF, and TFSA?

In a nutshell: spouses typically name each other as beneficiary or successor annuitant on registered accounts to allow for a tax-free rollover of assets on death, among other reasons. The designation remains in place even after divorce unless you change it (although the tax-free status of a spousal rollover would no longer apply). Should the beneficiary designation and the will not agree with each other, the beneficiary designation may take priority over the will. It is not our place to make legal advice, but clearly there should be agreement between the beneficiary designation on your registered accounts and the beneficiaries in your will to avoid legal confusion for your executor.

One way this could really matter: if the beneficiary designation takes precedence, then your ex-spouse, as beneficiary, would receive the full amount of assets from the account, even though this is in contradiction to your will. The assets are deemed to be deregistered upon your death, and if the account is not a TFSA, then this leads to a tax liability. The tax liability would fall to your estate and not to your ex-spouse. The beneficiaries of your estate, as listed in your will, would miss out on the registered account assets and be on the hook for the tax burden from deregistering those assets. If you are divorced or separated, make sure to review the beneficiaries of your registered accounts!

If you are concerned that this may apply to you, contact your investment advisor.