Should I name beneficiaries on my investment accounts or leave them to my estate?
—Catherine
Named beneficiaries vs the estate — which is better?
Thanks for your question, Catherine. When we plan our estates, one of the practical choices is deciding how investment accounts should transfer after death. The right approach depends on your situation, the types of accounts you hold, and your tax and family-planning goals. Below is a concise comparison of naming beneficiaries on registered accounts versus allowing accounts to pass through the estate.
Naming beneficiaries on registered accounts
In Canada (outside Quebec, where beneficiary designations are generally handled through a will), many registered accounts let you name one or more beneficiaries directly. These include registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), tax-free savings accounts (TFSAs), registered education savings plans (RESPs), and segregated funds. Non‑registered investment accounts usually cannot have beneficiaries named and will pass to the estate unless there is a surviving joint account holder.
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Each account type has its own rules about who you can name and how many beneficiaries are allowed, but the general advantages and disadvantages of naming beneficiaries apply across account types.
Pros
The most immediate advantage of naming a beneficiary is avoiding probate. Probate is the court process where the executor receives authority to administer the estate; it can be time-consuming and costly. Probate fees vary by province and can be significant. For example, in Ontario probate fees are roughly 1.5% on the estate’s value after the first $50,000, while Alberta uses a tiered flat-fee approach (for small estates the fee can be as low as $35). Naming a beneficiary lets the account bypass probate and transfer directly to the person named.
Another advantage is privacy. Accounts that pass directly to a named beneficiary usually stay out of the public probate record. Only the financial institution, the beneficiary and the account holder need be aware of the designation, which can be useful if you prefer discretion about who receives specific assets.
Cons
Direct designations can also create tax complications. For tax purposes in Canada, most assets are considered to be disposed of at death, a “deemed disposition” that can trigger capital gains or other taxes payable on the final tax return. If a registered account transfers directly to a named beneficiary, the account itself may avoid probate, but income taxes triggered by the deemed disposition still must be paid. That tax bill typically comes out of the estate’s funds, which means the people who inherit under the will could end up covering taxes for an asset that was transferred outside the estate. That mismatch can create unfair outcomes among beneficiaries.
What happens when no beneficiary is named on a registered account?
Not naming a beneficiary and allowing an account to flow into the estate is a valid choice and often fits certain estate plans better. Your will is the place where you specify how you want all your assets distributed, and sending registered accounts into the estate allows those assets to be handled per the will’s instructions.
People choose this option for many reasons: they want to allocate assets to multiple beneficiaries equally, create trusts, leave funds to charities, or set up staggered distributions so heirs receive inheritances at specified ages. Bringing accounts into the estate makes it easier to consolidate assets, set up trusts for minors, or ensure equitable treatment across beneficiaries.
Pros
Assets that go through the estate can be distributed in accordance with the will, which can prevent situations where one beneficiary receives a specific account outright while others indirectly bear the tax burden. Using the estate to coordinate distributions also reduces the risk of family conflict over perceived unequal outcomes and allows you to structure complex bequests such as age‑based distributions or ongoing trusts.
Cons
On the downside, assets routed into the estate are subject to probate fees and are part of the estate administration process. If an estate becomes contested, assets inside the estate can be tied up in legal disputes. Furthermore, probate makes some details of your estate a matter of public record, which may be a privacy concern for some families.
Bottom line
There isn’t a single correct answer for everyone. Naming beneficiaries can save time, preserve privacy and avoid probate costs, but it can also create tax and fairness issues among heirs. Letting accounts pass through the estate can simplify equal distribution, trust funding and charitable bequests, but it may increase probate fees and public disclosure.
To decide what’s best for your situation, consult a Certified Financial Planner, accountant or estate lawyer who understands provincial rules and tax implications. They can review your accounts, your will, and your family dynamics to recommend the most appropriate beneficiary designations and estate strategy.
Debbie Stanley is the CEO and Senior Estate Administrator at ETP Canada, a boutique firm in Guelph, Ontario that specializes in estate administration. ETP Canada provides executor support, estate accounting and professional executor services, and recently launched an online course for Canadian executors called Executor Ready.
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