How do you choose a beneficiary for your group benefit plan?
People sometimes ask us to help them make this decision, but of course we cannot do that. Who to name as your beneficiary is something only you can answer.
The most common choices are spouse, children, other family members, or favourite charity. It is also common to divide the assets amongst several different parties such as children or siblings.
Note that if your beneficiaries are minors, you need to nominate a trustee. It’s usually a good idea for that to be the same person who is a trustee in your will.
Naming a beneficiary is a serious decision
Of course the more parties that are involved, the more complex things can get, and it may be advisable that you speak to a lawyer. The same is true where you’re dealing with a large amount of money, such as a benefit of three times your annual salary.
Aside from talking to your family lawyer, you definitely want to talk to your family. I think quite often people don’t take choosing a beneficiary as seriously as they should. Think down the line what might happen, for example what if your beneficiary dies before you do, or what if you both die simultaneously in the same accident?
If your beneficiary has died, would you want the money to go to that person’s estate or to a surviving family member or others of your choosing? You can specify someone else as a contingency beneficiary. A contingency beneficiary doesn’t receive any money unless the primary beneficiary dies first. Putting this in place means your wishes will be clear.
Ideally, you should review your beneficiary from time to time, especially after divorce. We’ve had people phone us in a panic when they’ve realized an ex-spouse is still listed as their beneficiary.
In Quebec, beneficiaries are irrevocable by default, which means unless you designate the benefit as revocable, you cannot change them without the beneficiary’s permission. In one case, the former spouse would not agree and lawyers had to be involved.
Should the beneficiaries for your group benefits plan be the same as your will?
Some people elect to designate their estate as the group plan beneficiary, but there are reasons you may want them to be mutually exclusive. For one, your will could be much more complex than the life insurance policy in your group benefits plan. Some assets in your will could go to probate and not be settled for years.
Insurance companies, on the other hand, tend to get things paid off quickly as long as the documentation is correct. This money can be is very handy to pay for a funeral.
While I have only dealt with a handful of employee deaths in the years I’ve been in business, I remember one very sad situation where the employee’s original beneficiary had died and no one knew what to do with her money.
Naming a beneficiary is a tough thing to think about, but it is definitely something you want to do.
ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.