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 in this article, probate fees 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’s other estate litigation. During this time, the investments are often 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 10 business days 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 your 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’s 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 in 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 guaranteed interest accounts (GIAs), 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 GIA³ ($) |
|---|---|---|---|
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 GIA³ ($) |
|---|---|---|---|
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 GIA³ ($) |
|---|---|---|---|
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 GIA³ ($) |
|---|---|---|---|
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 |
|
15,000 |
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 GIA³ ($) |
|---|---|---|---|
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 GIA³ ($) |
|---|---|---|---|
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 GIA³ ($) |
|---|---|---|---|
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 GIA³ ($) |
|---|---|---|---|
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 GIA³ ($) |
|---|---|---|---|
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 GIA³ ($) |
|---|---|---|---|
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 In Quebec, the probate process and the probate fees (which are minimal) only apply to non-notarial wills. 2 In Saskatchewan, jointly held property and insurance policies with a named beneficiary are included on the application for probate but don’t flow through the estate and aren’t subject to probate fees. 3 Refers to segregated fund contract and guaranteed interest account
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