The purpose of beneficiary designations is to ensure that the proceeds of an insurance or investment policy or account reach the hands of the intended named person or entity. The designation is determined by provincial legislation. The owner of the policy is the person/company who controls the designation and makes the decision at the time of application, or declaring a change with the insurance or investment company after the account or policy is in place. A declaration that is made via a will or trust agreement may revoke the designation in an insurance policy and should be updated with the insurance carrier. When working with designations, be sure to get legal consultation to ensure the wishes of the owner are as intended.
There are two types of beneficiary designations in insurance policies. Revocable means the policy owner can make changes as they like and subsequent designations/declarations will revoke previous named beneficiaries. Irrevocable designations give certain rights to the beneficiary - the policy owner cannot alter or change the beneficiary, assign the policy, change policy coverage, transfer ownership, or withdraw funds without the beneficiaries permission. This designation may be suitable in the cases of creditor protection or separation agreements. If the policy lapses (due to non-payment, for example), no notice is given to the beneficiary.
Beneficiaries should always be identified by name. Generics like “my spouse” or “my children” can be ambiguous in the future if, at death, you are recently separated or in a new relationship, or if there are step-children. Unless advised to do so by a lawyer, most people may want to avoid naming their Estate as the beneficiary (the default). Any funds left to the Estate are subject to the provincial rules surrounding distribution of assets and may be subject to probate or other fees (as well as the time to administer settling the Estate).
Family law issues (divorce or separation) should be considered in beneficiary designations. For example, a court order can override a designation and the insurance proceeds be paid in a dependant relief claim (ex. A child is not named).
When naming children, a trustee is named as insurance proceeds cannot be paid to a minor. To exercise control over when the child would receive the funds, or what the trustee can do with the funds, an insurance declaration can be prepared with a lawyer, or a declaration made within a will. These options should be discussed with legal counsel.
Looking for information on naming beneficiaries for investment accounts? See this article.
* * For beneficiary discussions pertaining to your specific situation, please consult your professional.