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Estate Planning

Choosing Beneficiaries: Whether Property Falls Inside or Outside the Estate Matters

Clock7 min. read
byHaley A. Irwin, Associate at McKercher LLP onApril 21, 2021

By understanding the difference between what falls inside or outside the estate, you can plan better for the future & your family. Learn more about estate planning from Haley A. Irwin, associate at McKercher LLP.

Whether you are an executor taking care of the estate of a loved one, or you are engaging in estate planning for yourself, it is important to differentiate between property that falls inside the estate and property that falls outside. By understanding the difference in treatment of each category, you can administer estates more easily and plan better for the future.

What are the Two Categories?

Property owned by an individual on his or her death will fall into one of two categories: for simplicity, I will refer to them as “inside the estate” and “outside the estate”. When property falls outside the estate, it means that the deceased person has specifically selected a person (or persons) to be the beneficiary (or beneficiaries) of the property. The selection can take one of two forms: (1) the deceased designates a specific person as the beneficiary of the particular property in the document that governs that piece of property; or (2) the deceased person owns the property jointly with another person, which gives the surviving party a right of survivorship.

Property that falls outside the estate will bypass the estate and be transferred directly to the named beneficiary (or beneficiaries) as indicated in the document that governs the property—or in the case of property held jointly, to the surviving owner. For example, if the fictitious person, Jane Doe, held a life insurance policy and she indicated in the policy that the beneficiary of the policy would be her husband, John Doe, John would receive the proceeds from the life insurance policy upon the death of Jane. Similarly, if Jane and John owned a house together as joint tenants with right of survivorship, the house would be transferred into John’s name alone upon the death of Jane.

Conversely, when property falls inside the estate, it means that an individual person (or persons) was not named as the beneficiary of the estate in the document that governs that piece of property. In other words, the beneficiary of the property is “The Estate of [the deceased person]”.

Property that falls inside the estate will be distributed according to the deceased person’s last will and testament, or where a person dies without a valid will, according to the provisions of Saskatchewan’s intestate legislation in force at the time of the person’s death. For example, if the fictitious person, Dan Smith, held a life insurance policy and he indicated in the policy that the beneficiary of the policy would be The Estate of Dan Smith—or he simply did not name a beneficiary in the policy—then Dan’s wife, Darla Smith, would not necessarily receive the proceeds from the life insurance policy upon the death of Dan. The proceeds would vest in the executor or administrator of Dan’s estate, and then they would be distributed according to Dan’s will, if he died with a valid will, or otherwise according to the intestate legislation. Therefore, Darla may receive proceeds from the life insurance policy, but only if the will or the intestate legislation provide that she is entitled to some or all of the proceeds.

Which of the Two Categories Applies?

Examples of property that may fall outside the estate include, but are not limited to, the following:

  • Insurance policies payable to a named beneficiary;

  • Private pension plans payable to a named beneficiary;

  • Financial accounts payable to a named beneficiary (e.g., RRSPs, RRIFs, TFSAs, etc.);

  • Other bank accounts where the deceased person and another person were joint account holders; and

  • Property owned by the deceased person and another person as joint tenants with right of survivorship (e.g., land, vehicles, etc.).

Examples of property that may fall inside the estate include, but are not limited to, the following:

  • Insurance policies not payable to a named beneficiary;

  • Private pension plans not payable to a named beneficiary;

  • Financial instruments not payable to a named beneficiary (e.g., RRSPs, RRIFs, TFSAs, etc.);

  • Other bank accounts where the deceased person was the only holder of the account;

  • Property owned by the deceased person and another person as tenants in common (e.g., land, vehicles, etc.); and

  • Property owned by the deceased person alone (e.g., land, vehicles, household goods, antiques, etc.).

The above lists are meant to act as general guidelines for whether property may fall inside or outside the estate. The ultimate determination of who will receive property depends on the document governing the property (if applicable), the will (if applicable), and the Canadian legislation and case law.

Why is the Distinction Important?

It is important to differentiate between the two categories above because there can be serious consequences depending on whether the property falls inside or outside the estate. For example, property that falls inside the estate will be subject to probate fees if the estate is probated. In Saskatchewan, for every $1,000 (or portion of $1,000) in value of an estate, probate fees will be $7 (see The Administration of Estates Act, SS 1998, c A-4.1 at section 51(2)). To illustrate, on an estate worth $100,050, probate fees will be $707. As another example, once a person is listed as a named beneficiary of certain property—which would cause the property to fall outside the estate—the will alone cannot then indicate that the property is to instead be transferred to another party through the estate.

Although it may seem like property can be easily sorted into the categories of either inside or outside the estate, getting the property into the hands of the rightful beneficiary is not always so simple. The process in which each type of property above is transferred to the intended beneficiary is different between types of property and unique sets of circumstances. Furthermore, as previously mentioned, all applicable documents, the will, and the law may affect how the property is distributed. For advice on the treatment of a specific piece of property, please contact one of our lawyers for assistance.

About the Author:

Haley is an associate in the Regina office.

About McKercher LLP:

McKercher LLP is one of Saskatchewan’s largest and most established law firms, with offices in Saskatoon and Regina. Our deep roots and client-first philosophy have led to our firm ranking in the top 5 in Saskatchewan by Canadian Lawyer magazine (2017/18). Integrity, experience and capacity provide innovative solutions for our clients’ diverse legal issues and complex business transactions. This post is for information purposes only and should not be taken as legal opinions on any specific facts or circumstances.  Counsel should be consulted concerning your own situation and any specific legal questions you may have

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