When you take out life insurance (individual policy or group plan), you must indicate to whom the insurance proceeds will be payable in the event of your death. This requires special attention in order to ensure that the money will not be paid to someone against your wishes. To learn more about this subject, read this article!
Specifying a Designated Beneficiary for Your Life Insurance
You have the choice between indicating that the life insurance proceeds will be payable to one or several designated beneficiaries or simply to your “estate” or “legal heirs”. Specifying one or several designated beneficiaries comes with many benefits. For one, the insurance payable to one or several designated beneficiaries will not be part of your estate and therefore, should your estate end up being insolvent upon your death (i.e. you leave more liabilities than assets), your heirs could simply renounce your estate and lawfully receive the insurance proceeds without being required to pay the estate debts. Another benefit is that claims are generally processed faster when a designated beneficiary is specified on your life insurance.
Indicate Your “Estate” or “Legal Heirs”
On the other hand, if you specified that the insurance will be payable to your “estate” or “legal heirs”, their identity will have to be checked in your will, or if you did not make a will, determined based on the rules of the Civil Code of Quebec. In such cases, the heirs will have to accept your estate to be entitled to the life insurance proceeds.
Generally, we recommend that our clients indicate a designated beneficiary on their life insurance policy, EXCEPT if they intend the proceeds to go to their minor children and have made a will. In this specific case, it is much better to make the insurance proceeds payable to your “estate” or “legal heirs”, since your children will be better protected under the will and, more importantly, you will be able to determine at what age they will receive the interest and capital from the insurance, while providing your executor with means of control over the disbursements.
What about designating your children as beneficiaries?
In Quebec, it is impossible to protect minor children by naming them as beneficiaries on a life insurance policy and designating on the face of the insurance policy a trustee to manage this asset. Moreover, should you designate your minor children as beneficiaries, the insurer will be required under the Civil Code of Quebec to advise the Public Curator of Quebec of the payment made to your children’s guardian, who will have to be overseen by a tutorship council, which in turn will be overseen annually by the Public Curator’s Office, until the child turns 18 (at which time it will be MANDATORY to remit the amount of the insurance benefit to the child).
Once again, when transferring insurance proceeds to a minor child, having a will can better ensure that your wishes will be respected and that the use and payment of such amounts will be properly managed in the child’s best interest.
Notary and associate of the PFD Notaires, s.e.n.c.r.l.| This article was written by our contributor, Danielle Beausoleil. Do you want to know more on this topic? Do not hesitate to contact her at Danielle.firstname.lastname@example.org or 450 449-1000 ext. 250.
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