One of the most confusing aspects of estate administration is understanding which assets actually form part of the estate requiring probate, and which pass directly to beneficiaries outside the estate process. This article walks you through the concept of assets passing outside the estate. We can't give any legal advice without knowing the specific facts of your case.
This checklist is designed to set out common issues in estate administration but it is not a substitute for legal advice. Call us or reach out directly if you would like advice about your particular situation.
Assets passing outside the estate offer several potential advantages:
However, these strategies can create unintended problems if not properly coordinated with your will.
When Your Spouse is the Beneficiary:
If you designate your spouse as the beneficiary of your RRSP or RRIF, or as the successor annuitant:
When Children or Other Beneficiaries Receive the Funds:
If someone other than your spouse is the designated beneficiary:
Critical Tax Trap:
Consider this scenario: Your will leaves your $500,000 estate equally to your three children. You've also named one child as beneficiary of your $300,000 RRSP "to keep things simple."
The result:
The Income Tax Act creates joint and several liability on RRSP beneficiaries for the tax, but the Canada Revenue Agency may only pursue them if the estate cannot pay.
Dependent Children and Grandchildren:
Special rules apply when a dependent child under 18, or a permanently disabled dependent adult child, is designated as beneficiary:
Important Note on Guardian Requirements:
Most annuity companies will only make payments to a court-appointed guardian of property for a minor child - the estate trustee is not automatically the guardian, and neither is the child's custodial parent.
TFSAs offer more flexibility than RRSPs:
For Surviving Spouses:
A surviving spouse can roll TFSA funds into their own TFSA regardless of contribution room, preserving the tax-free status completely.
For Other Beneficiaries:
Non-spouse beneficiaries receive the funds tax-free but can only contribute to their own TFSA if they have available contribution room.
Life insurance payable to a named beneficiary is one of the clearest examples of assets passing outside the estate:
Key Benefits:
Critical Consideration - Insurance for Estate Purposes:
If you're using insurance to pay taxes arising from deemed dispositions at death (such as capital gains on a cottage or business), the insurance must be payable to the estate, not to individual beneficiaries. Otherwise:
Designating Beneficiaries by Will:
You can designate life insurance beneficiaries in your will, but:
Separated Spouses:
General waiver clauses in separation agreements may not be sufficient to change insurance beneficiaries. Unless the separation agreement specifically mentions particular policies, a separated spouse named as beneficiary may still have an enforceable claim. You must specifically change beneficiary designations on policy documents or through a new will provision.
Joint ownership with right of survivorship allows assets to pass directly to the surviving owner without probate. However, this creates one of the most litigated areas in Ontario estate law.
The Basic Rule:
Property designated as "joint tenants, not as tenants in common" or "joint with right of survivorship" legally passes to the surviving owner. But legal title doesn't always equal beneficial ownership.
The Supreme Court's Position (Pecore v. Pecore and Madsen Estate v. Saylor):
These landmark 2007 cases established:
For minor children: Presumption of advancement applies - the joint asset is presumed to be a gift
For adult children: Presumption of resulting trust applies - the surviving joint owner is presumed to hold the asset in trust for the estate unless they can prove a gift was intended
Evidence to prove a gift was intended:
Common Scenarios That Create Problems:
Estate Administration Tax Implications:
Even if an asset is legally held jointly, if the true intention was that it be held in trust for the estate and distributed according to the will:
Best Practices to Avoid Disputes:
If you're creating joint ownership to avoid probate costs:
If you're creating joint ownership purely for convenience (to have someone help pay bills):
Real estate owned solely by the deceased requires specific procedures to transfer to beneficiaries or to sell.
Transmission Application vs. Transfer:
If the will directs that a specific beneficiary receive a property:
Jointly Held Real Estate:
Property held as joint tenants passes by survivorship:
However, the same resulting trust principles apply - just because title was joint doesn't always mean the beneficial interest passes by survivorship.
Powers of Attorney and Real Estate:
If you hold power of attorney for someone who has become incapable:
Most banks will not allow attorneys under powers of attorney to unilaterally transfer assets into joint names with themselves, protecting against potential abuse.
The intersection of tax law, property law, and estate administration creates countless opportunities for well-intentioned plans to go wrong:
At Sheard Law, we help Toronto-area families create coordinated estate plans that:
We also guide estate trustees through the complex requirements of estate administration, including navigating jointly-held assets, beneficiary designations, and the Estate Information Return requirements.
Call us at 416-860-9990 or contact us through our website to discuss your estate planning or estate administration needs.
