Dear Nancy Woods,
I recently became a widow and I am working on updating my will. I am planning to leave my retirement plan to my son as the named beneficiary and my investment account to my daughter. Is this a good idea or should I have all assets governed by my will? I am trying to simplify things for the future.
Signed, Vera
Dear Vera,
I know that you think that naming a beneficiary for your retirement account is simplifying things, but it will not be accomplishing what you think. If you name your son as your beneficiary it is true that the assets will pass directly to him.
Upon the date of your death, the funds in your retirement plan are considered de-registered and therefore taxable as income. This does not mean that the tax liability is paid by those assets but by those of the rest of the estate. That would mean that your son would receive the entire value of the retirement account and the tax bill would be born by the assets you plan on leaving to your daughter.
You can name both as beneficiaries to the retirement account, as this avoids the probate costs, and then leave the other assets to both children governed by the will.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com
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