What—or who—is a beneficiary?

When you join a group retirement plan, we ask you to name your beneficiaries—but what does beneficiary mean? What happens if you don’t name any? Naming your beneficiaries within your plan—not your will—is critical. It’s also pretty easy to do. We’ll explain the what, why, and how of group retirement plan beneficiaries to help you protect your savings and your loved ones.

What’s a beneficiary?

In the context of your group retirement program, a beneficiary is a person or entity (like a trust or charity) you name that gets the money from your savings or retirement plans when you die. You can choose one beneficiary or more than one. If you choose more, you decide how they share the money. You can usually add or change the beneficiaries on your group retirement and savings plans any time over the life of the plan.

Why are beneficiaries important?

If you don't have beneficiaries when you die, or you only name them in your will, the money in your plans goes into a process known as probate, where courts and provincial laws settle who gets what. 

Along with other things, the probate process confirms which assets should be included in the estate. Assets like the money in most savings and retirement plans can be left out of the estate—and probate—if the beneficiaries for them have already been named. 

Probate can be a lengthy, costly, and public process. Choosing your beneficiaries in advance is one of the best ways to help make sure the money in your plans gets to your loved ones as simply and quickly as possible.

Who should your beneficiaries be?

So who can you name as a beneficiary?

  • A person—Such as your spouse, child, parent, sibling, relative, or even a friend
  • A charity—You can leave your money to any charity of your choice 
  • A trustee—A person or organization that manages someone else’s property or money
  • Your estate—The total of all your assets and debts when you die

You can have different beneficiaries for different plans. You might choose your spouse as the beneficiary of your pension plan and your sister for your Registered Retirement Savings Plan (RRSP). If you passed away while still invested in these plans, your spouse would get the money in your pension plan and your sister would get the money in your RRSP. 

You can also split the money in a plan between more than one beneficiary; for example, you might choose to leave 50% of the money in your tax-free savings account to your daughter and the other 50% to your favourite charity. 

No one can tell you who your beneficiaries should be, but getting advice from a financial advisor or estate planner can help you figure out what’s best for you and the loved ones you leave behind.

Are there special rules when you have a spouse?

Mostly, having a spouse doesn’t affect how you choose your beneficiaries or what their rights are under the plan. But for Registered Pension Plans, if you have a spouse when you die, your spouse is entitled to the money in your plan no matter who you named as beneficiary. 

If you live in Quebec and name your spouse (civil union or married) as your beneficiary, your spouse is an irrevocable beneficiary unless you tell us otherwise. This means you'll only be able to change your beneficiary if your spouse agrees in writing. There may be other things you'll need your spouse to agree to as well.

Are there special rules about kids?

You should carefully consider what it means to name a minor child as your beneficiary. A minor is a person who isn't legally an adult. Each province and territory sets its own age of majority. Right now, it’s either 18 or 19. 

If you want to name any minor children as beneficiaries, you should also name a trustee. In general, a trustee is a person or organization that manages someone else’s property or money. In this case, the trustee would manage the money you leave to your minor beneficiary according to the instructions under the trust. If your beneficiary lives in Quebec, you don’t need a trustee: The child’s tutor—usually a parent, if living—or a person or people named by the parents or the court manage the money instead. 

What’s a contingent beneficiary?

A contingent beneficiary—you might prefer to call them a secondary beneficiary— gets money from your plan if all your primary beneficiaries die before you. They might also get money from your plan if your primary beneficiaries can’t be located or refuse the money when it’s time to pay it out. 

Naming contingent beneficiaries allows the money in your plan to pass to a different person you name without going through probate.

What happens if a contingent beneficiary dies? 

Nothing, as long as at least one of your primary beneficiaries is still alive. If your primary beneficiaries have passed away, your contingent beneficiary’s share is split between the rest of your contingent beneficiaries. If you have no other contingent beneficiaries, the money in your plan goes into probate.

How often should you check your beneficiaries?

Life happens—relationships grow and change, loved ones are born, and loved ones pass away. 

Review your beneficiaries when something big happens in your life or, better yet, as part of a regularly scheduled financial checkup to make sure your choices still match your wishes. 

Are your beneficiaries part of your estate plan?

Naming beneficiaries is an important part of estate planning. It puts you in control of your money, and it can save your loved ones time, money, and stress during what will already be a difficult time in their lives. 

There’s a lot to understand about estate planning and naming beneficiaries. There are laws in place that can change who gets the money in your plans when you die. Talk to an advisor or estate planner to be sure you understand the rules about naming beneficiaries, irrevocable beneficiaries, minor beneficiaries, and trusts. 

The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.