Consider This Before Naming Your Children Beneficiaries In Your Life Insurance Policy

How to Avoid the Public Trustee and Probate Tax

If you have minor children, you likely have life insurance or registered savings like RRSPs and TFSAs to protect their future. However, a common and potentially costly misconception is that naming your child as a beneficiary ensures they will receive the money immediately if the unthinkable happens. In Nova Scotia, children under the age of 19 lack the legal capacity to receive these proceeds directly. Without specific legal planning in your Will, your family may face unexpected hurdles.

When a financial institution identifies a minor as a beneficiary, they cannot legally "discharge" the payment to that child. If you haven't named a specific trustee, the law in Nova Scotia may require the money to be paid to the Public Trustee. The Public Trustee then manages the funds in a government-monitored trust until the child reaches the age of majority. While this ensures the money is safe, it can limit your family's flexibility. Caregivers may need to apply to the government for funds to cover the child's needs, and the trust can be subject to government oversight and fees.

You can maintain control by including a specific Insurance Declaration within your Will. This legal tool essentially instructs the insurance company: "Do not pay the government; pay my Executor to hold this money in trust for my child". By referencing the Nova Scotia Insurance Act, you grant your chosen Executor the legal authority to collect the funds directly. This allows a person you trust—someone who knows your children’s unique needs—to use that money immediately for tuition, medical bills, or daily living expenses.

You can maintain control by including specific legal "declarations" within your Will. These instructions essentially tell the insurance company or bank: "Do not pay the government; pay my Executor to hold this money in trust for my child." To be effective, your Will should reference two key pieces of legislation. The Nova Scotia Insurance Act allows your Executor to collect life insurance payouts directly. The Nova Scotia Beneficiaries Designation Act grants your Executor the same authority over "plans" like RRSPs, TFSAs, RDSPs, and pensions. By using these acts, you ensure a person you trust—someone who knows your children’s unique needs—can use that money immediately for tuition, medical bills, or daily living expenses.

Even with a strong Will, you should contact your financial providers to ensure your beneficiary designation aligns with your estate plan. Rather than naming the child(ren) alone, consider naming "The Trustee under my Will" (using those precise words inside the quotes). This keeps the money "off-estate," meaning it generally isn't subject to Nova Scotia’s probate taxes, yet it remains protected by the specific trust terms you’ve written in your Will. Taking these steps today ensures your hard-earned savings provide seamless support for your children through the hands of those you trust most.

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