A client once told me his estate was sorted — he had a recent will leaving everything equally to his three children. His largest asset was an RRSP still naming his first wife, from a marriage that ended in 1998.
His will could not touch it. Beneficiary designations generally override wills, and that RRSP would have gone to his ex-wife regardless of what the will said.
This is the most consequential thing most people do not know about estate planning.
Two separate systems
Your assets pass in one of two ways, and the distinction determines almost everything.
Through your estate — controlled by your will, subject to probate, exposed to estate administration tax and to creditors, and public record. This covers property in your name alone, non-registered accounts, and anything with no beneficiary named.
Outside your estate — controlled by the designation on the account itself, paid directly to the named person, generally faster, private, and not subject to probate fees. This covers life insurance with a named beneficiary, RRSPs, RRIFs and TFSAs with designations, segregated funds, and jointly held property with right of survivorship.
For many Canadians the second category is the larger one. Which means the will — the document people focus on — may control a minority of what they own.
Probate in Ontario
Probate is the court process confirming a will's validity and the executor's authority. In Ontario the estate administration tax is charged on the value of estate assets above a threshold, at roughly 1.5%.
On a $600,000 estate that is meaningful but not enormous. What families notice more is the delay — probate commonly takes months, during which estate assets can be difficult to access. Assets passing outside the estate typically reach beneficiaries in weeks.
That difference matters when a surviving spouse needs money to live on.
Where life insurance fits
Life insurance with a named beneficiary is one of the cleanest transfers available. The proceeds pass directly, tax-free, outside the estate, usually within weeks, and privately.
It also solves a specific problem: liquidity. On death there is a deemed disposition of capital property, so accrued gains on a cottage, a portfolio or a business become taxable. If the estate is asset-rich and cash-poor, heirs may be forced to sell the very asset you wanted them to keep. Insurance provides cash to pay the tax so they do not have to.
Naming your estate as beneficiary on a life policy pulls the proceeds into probate, exposes them to estate administration tax and to creditors, and delays payment. There are occasional reasons to do it deliberately, but as a default it discards the main advantages of insurance.
Designations people get wrong
An ex-spouse still named. Depressingly common. Divorce does not automatically update designations on every account.
A minor child named directly. Minors cannot receive insurance proceeds directly. Without a trust or a properly appointed trustee, funds may be paid into court and released at the age of majority — often 18, which is young to receive a large sum. Naming a trustee for a minor beneficiary is straightforward and frequently skipped.
No contingent beneficiary. If your sole beneficiary predeceases you and no alternate is named, the proceeds usually fall into the estate — losing every advantage.
Spouse as TFSA “beneficiary” instead of “successor holder.” Successor holder lets a spouse take over the account intact, preserving its tax-free status. Beneficiary means the account stops being a TFSA. It is a free upgrade most people miss.
Common-law and blended families
Two points that cause genuine hardship.
Common-law partners do not have the same automatic inheritance rights as married spouses under Ontario intestacy rules. If you are common-law and die without a will, your partner may receive nothing automatically, regardless of how long you were together. A will and correct designations are not optional in this situation.
In blended families, leaving everything to a new spouse and trusting they will provide for your children later is a common arrangement that frequently fails. Trust structures and appropriately designated insurance can provide for a spouse during their lifetime while ensuring children eventually receive their share.
A review checklist
- List every account with a beneficiary designation — insurance, RRSP, RRIF, TFSA, pension, segregated funds.
- Check who is actually named on each. Not who you think; log in and look.
- Name contingent beneficiaries everywhere.
- Use successor holder for a spouse on a TFSA.
- Appoint a trustee where a minor is a beneficiary.
- Re-check after every life change — marriage, separation, divorce, birth, death.
I am not a lawyer and your will needs one. But the designations on your insurance and registered accounts are squarely within what I do, and reviewing them is quick. Given how often they are wrong, it is worth the half hour.
Two systems, and the one that usually wins
| Passes by will | Passes by designation or survivorship |
|---|---|
| Property held in your name alone | Life insurance with a named beneficiary |
| Non-registered investments, solely held | RRSP, RRIF and TFSA with a named beneficiary or successor |
| Personal belongings | Property held in joint tenancy |
| Anything with no valid designation | Pension survivor benefits |
The right column never passes through the will. It goes directly to the person named on the document, and the will does not override it. This is the single most misunderstood point in estate planning, and it is the reason a carefully drafted will can still produce an outcome nobody intended.
A will that says "everything equally to my three children" does nothing about an RRSP naming one of them. That child receives the RRSP and an equal third of the rest.
Probate, and what it actually costs in Ontario
Probate is the court confirming the executor's authority. In Ontario the associated Estate Administration Tax is charged on the value of the estate passing through the will — so reducing what flows through the will reduces the tax.
The rate is set by the province and has changed before, so check the current figures on Ontario's own estate administration tax page rather than relying on a number quoted anywhere else, including here. What matters for planning is the structure: assets with a valid beneficiary designation generally bypass the estate entirely and are not counted.
Probate also takes time. Executors frequently wait months before they can deal with a bank or transfer a property, during which bills still arrive. Life insurance paid to a named person is not caught by that delay, which is often its most practical benefit — liquidity at the moment the family needs it.
Where life insurance fits
Three distinct jobs, worth separating:
- Liquidity. Money within weeks, outside probate, so the family can pay for a funeral and keep the household running.
- The tax bill at death. Canada has no estate tax, but there is a deemed disposition — capital property is treated as sold at death. A cottage or a non-registered portfolio can produce a large, immediate tax liability, and insurance is often the cheapest way to fund it without forcing a sale.
- Equalising an inheritance. Where one child inherits the family business or the cottage, insurance can give the others something comparable without breaking up the asset.
The deemed disposition catches families by surprise more than anything else here. A cottage bought decades ago and now worth many times its cost can generate a tax bill the heirs cannot pay, and the asset gets sold to settle it — usually the opposite of what the parents wanted. See the family cottage for that specific case.
Designations people get wrong
- Never updated after a divorce. An ex-spouse named on a policy from 1998 generally still receives it. Ontario law changed some default outcomes for wills after separation, but a designation you control is yours to fix — do not rely on legislation to read your mind.
- Naming a minor child directly. A minor cannot receive the money; it may end up supervised by the court or needing a guardian of property, which is slow and rigid. Name a trust instead.
- Naming "my estate" by default. That drags the proceeds through probate and exposes them to creditors, losing the main advantage.
- A beneficiary on provincial disability benefits. A direct payment can interrupt them — see planning for a child who will need lifelong support.
- Joint ownership added for convenience. Adding an adult child to a property or account to avoid probate can trigger tax, expose the asset to that child's creditors or divorce, and create a dispute about whether it was a gift. It is not a free trick.
Common-law and blended families
This deserves singling out because the assumption is so common and so wrong: in Ontario, a common-law partner has no automatic right to inherit under intestacy rules. Live together for twenty years, own a home together, raise children together — if there is no will and no designation, the estate passes under rules that do not include them.
For blended families, the risk runs the other way. Leaving everything to a second spouse with the understanding that it passes to your children afterwards depends entirely on that spouse keeping the arrangement, and they are under no obligation to. Insurance naming your own children directly is often the cleaner answer, because it does not depend on anyone's goodwill after you are gone.
A review checklist
- List every account and policy and write down who is named on each. Most people have never seen it in one place.
- Check against your will. Where they disagree, the designation wins — decide which one is actually right.
- Look for a minor, an ex-spouse, or "estate" in the beneficiary field.
- Name contingent beneficiaries, so the gift does not fall into the estate if the first person dies before you.
- Estimate the deemed disposition on any cottage, business or non-registered portfolio, and ask whether the heirs could pay it.
- Review after every life event — marriage, separation, a birth, a death, a property purchase.
I am not a lawyer and this is general information rather than legal advice; a will needs an Ontario estate lawyer. What I can do is check the designations on your policies and work out whether the tax at death is funded. Get in touch if you would like that looked at, or see when to review your beneficiaries.
