The value of naming a beneficiary

Investment Insight

The value of naming a beneficiary can be significant. If you name a beneficiary, an insurance company is obligated, under the Insurance Act, to pay any death benefit proceeds to the named beneficiary on record. Having the death benefit proceeds avoid the estate provides many advantages. It can avoid the delays of settling the estate including estate litigation (such as will challenges) and you also bypass probate1 and other estate administration fees. As illustrated below, probate fees will vary by province. Other estate administration, accounting and legal fees could be another five per cent or more depending on the complexity of the estate. What follows is more on the advantages of naming a beneficiary.

Market Risk/Liquidity

Settling an estate can be lengthy, frequently taking months or even years if the will is challenged or there is other estate litigation. Often during this time, the investments are frozen and exposed to the risks of the market (e.g. a market correction). Instead, when a beneficiary is named the death benefit proceeds are usually paid within two weeks of receipt of proper documentation.  This puts money in the beneficiary’s hands quickly, to use as they see fit, e.g. pay down debt, make a purchase, reinvest the funds etc. As such, the exposure to market risk is significantly reduced.

Furthermore, even having just a portion of one’s estate with an insurance company can provide beneficiaries with much needed cash, alleviating the stress of having to pay any outstanding expenses and incoming bills while they wait for other funds from the settlement of the estate.

Assets not subject to the deceased’s creditors

When assets flow through an estate (which generally occurs when non-registered assets are paid by financial institutions other than insurance companies), they may become vulnerable to the deceased’s creditors. For beneficiaries, this could mean a substantially smaller inheritance. Having the death benefit proceeds bypass the estate offers potential protection from estate creditors.

Control

Clients can use the Annuity Settlement Option to automatically transfer segregated fund proceeds upon death into an annuity and specify scheduled payments for the beneficiaries.

Ease the burden on the executor

While being an executor can be very rewarding, it is also a big responsibility that comes with the risk of personal liability. By having assets dealt with outside of your estate so your executor doesn’t have to manage them, you can ease the burden and reduce the risk for your executor.

Privacy

Bypassing probate also preserves confidentiality as probate is a matter of public record; payments made by insurance companies are generally a private matter2.  This can be beneficial to situations where the intention is to keep one’s wishes undisclosed between family members.

When you name a beneficiary with Manulife segregated fund contracts and GICs you can keep more of your money in your family.

The value of bypassing probate – Based on $1,000,000 example in British Columbia

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Probate fee

150 + $14 per $1,000 > $50,000

13,450

0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

28,450

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing probate – Based on $1,000,000 example in Alberta

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Probate fee

Flat fee

525

0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

15,525

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing probate – Based on $1,000,000 example in Saskatchewan

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Probate fee

$7 per $1,000

7,000

0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

22,000

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing probate – Based on $1,000,000 example in Manitoba

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Probate fee $70 + $7 per $1,000 > $10,000 7,000 0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

22,000

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing probate – Based on $1,000,000 example in Ontario

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Probate fee

$15 per $1,000 > $50,000

14,250

0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

29,250

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing the estate – Based on $1,000,000 example in Quebec

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Estate Administration Fees

Liquidator: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

15,000

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing probate – Based on $1,000,000 example in New Brunswick

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Probate fee

$5 per $1,000

5,000

0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

20,000

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing probate – Based on $1,000,000 example in Prince Edward Island

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Probate fee

$400 + $4 per $1,000 > $100,000

4,000

0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

19,000

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing probate – Based on $1,000,000 example in Nova Scotia

Fee

Structure

Mutual Fund ($)

SFC or GIC3 ($)

Probate fee

$1,002.65 + $16.95 per $1,000 > $100,000

$16,258

0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

31,258

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

The value of bypassing probate – Based on $1,000,000 example in Newfoundland & Labrador

Fee

Structure

Mutual Fund ($)

SF or GIC3 ($)

Probate fee

$60 + $6 per $1,000 > $1,000

6,054

0

Estate Administration Fees

Executor: Varies by province (up to 5% for corporate executors)

Legal and Accounting: Varies depending on complexity

Total fees: 1.5% of assets used in this example

15,000

0

Total Cost

 

21,054

0

For illustration purposes only. Costs will vary depending on the province, complexity of the estate and length of time the assets were held in the contract.

1 The probate process and fees do not apply in Quebec. There is a verification process for non-notarial wills but not for notarial wills. 2 In Saskatchewan jointly held property and insurance policies with a named beneficiary are included on the application for probate but do not flow through the estate and are not subject to probate fees. 3 Refers to segregated fund contract and Manulife Investments Guaranteed Interest Contract.

The commentary in this publication is for general information only and should not be considered investment 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. Manulife, Manulife Investment Management, the Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.

Tax, Retirement & Estate Planning Services Team

Tax, Retirement & Estate Planning Services Team

Manulife Investment Management

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