A Minor Beneficiary, a Beneficiary Who Cannot Be Found, and the Estate by Default

A death benefit goes to the person named on the insurer's file, and the whole of estate planning around a contract assumes that this person is an adult, can be found, and is alive on the day the money becomes payable. This page is about the three cases where one of those assumptions fails: the beneficiary is a child, the beneficiary cannot be located, or no beneficiary survives. It does not cover what a creditor can reach, which is set out separately, nor how the amounts around a death are taxed, which is also set out separately.

Everything below is general information written by a licensed insurance professional. Tutorship, trusts, wills and the administration of an estate are questions of law, and they belong to a lawyer or, in Quebec, to a notary who has the family's papers in front of them. Canadian Wealth Creation Centre Inc., trading as IBC Financial, is not authorized to give legal, tax or notarial advice and gives none here.

What happens to a death benefit when the beneficiary is a minor?

The insurer pays somebody other than the child. A minor cannot give a valid discharge, so the money goes to the person the law recognizes on the child's behalf: in Quebec the tutor, and in a common law province a trustee named by the owner or, failing one, the court. The child receives it at majority.

The reason is the same in both systems. Article 153 of the Civil Code of Quebec fixes the age of majority at 18, and until then a person is a minor who does not have the full exercise of civil rights. Article 158 provides that, except where a minor may act alone, the minor is represented by a tutor for the exercise of those rights. Signing a receipt for a death benefit and deciding what to do with it are the exercise of civil rights, and a child does not perform them alone.

The consequence that surprises families is not that the child waits. It is who holds the money while the child waits, on what terms, and who the law appoints to that role when nobody thought to choose. A designation form asks for a name and a relationship. It does not ask who should look after the money for the next twelve years, and where the form is silent the statute answers instead.

Who receives the money for a child in Quebec?

The tutor. Article 177 of the Civil Code of Quebec provides that tutorship is established in the interest of the minor, to ensure the protection of the child's person, the administration of the child's patrimony and the exercise of the child's civil rights. A death benefit payable to a child is part of that patrimony, and the tutor administers it.

Article 192 provides that the father and mother or the parents, if of full age or emancipated, are by operation of law tutors to their minor child for the purposes of representing the child in the exercise of civil rights and administering the child's patrimony. Article 193 provides that they exercise that tutorship together unless one of them is deceased or prevented from expressing their wishes. So where a parent dies and names a child, the surviving parent becomes the sole legal tutor and the insurer pays that parent, in that capacity, whether or not the two parents were still together and whether or not that was the intention.

Article 178 provides that tutorship is legal, suppletive or dative. Tutorship that results from the law is legal. Tutorship for which a tutor is designated by the father or mother, or by the parents, is suppletive or dative, and in a dative tutorship the tutor may also be designated by the court. That is the door through which a parent chooses who will administer a child's property after both parents are gone, and it is opened by a will or a mandate drawn with a notary, never by an insurer's form.

The tutor does not own the money and does not spend it freely. The Code sets out the tutor's administration of the minor's property, and above a value the Code fixes it places that administration under the supervision of a tutorship council and the Public Curator, with an inventory, security and an annual account. The current article numbers, the threshold and the exact obligations were not reproduced here because they could not be read at the source on the review date, and a notary will give them from the current text. The alternative is a testamentary trust, with a trustee the parent chose and terms the parent wrote, and that is a notary's document rather than an insurance professional's.

Who receives the money for a child in a common law province?

A trustee for the beneficiary, where the owner named one, and otherwise a person or a court the Insurance Act recognizes. Section 62 of the British Columbia Insurance Act, headed trustee for beneficiary, lets the owner appoint the person who will receive and hold the money for a beneficiary, and payment to that trustee discharges the insurer.

The appointment is a line on the designation form, and it is the line a common law province offers in place of Quebec's tutorship. The trustee is not required to be a parent, and choosing somebody other than the surviving parent is lawful, which is exactly what makes the clause useful in a family where the surviving parent is a former spouse, is unwell, or is not the person the owner would have chosen to handle money. The clause costs nothing and takes a minute, and it is left blank on most forms.

Where no trustee was named and the beneficiary is a minor, the Act provides its own route. Section 88 is headed payment of insurance money for minors, and section 82 is headed payment into court. Between them they give an insurer that admits liability, but has no person able to give a valid discharge, a way to pay the money into court or to the appropriate public official, so that the insurer is discharged and the money is held for the child. The text of those two sections was not reproduced here because only the Act's table of contents could be read at the source on the review date, and their exact conditions are for a lawyer to confirm.

British Columbia is named because that is the Act whose table of contents this page read. Every other common law province has an Insurance Act with a trustee for beneficiary provision and a payment into court provision under its own numbering, and none of them is reproduced here on the strength of somebody else's summary. The question to ask, in writing, is which section of the Act in your province governs a trustee for a beneficiary and which governs payment where a beneficiary is a minor.

What is the honest cost of naming a child directly?

Naming a child directly is the commonest designation error and the one that costs the most time. It looks natural, and it hands the money to whoever the law makes tutor or trustee, holds it under the law's supervision rather than the parent's terms, and releases all of it at the age of majority.

The cost arrives in three forms. The first is delay, because a tutor in Quebec may have to be confirmed, a tutorship council may have to be constituted and a court in a common law province may have to receive the money before anyone can touch it. The second is control, because the person administering the money was chosen by a statute and not by the parent. The third is the cliff at majority, because nothing in the law of tutorship keeps the money together past the day the child stops being a minor.

The counterweight is also honest. A contingent beneficiary and a trustee clause are ordinary and free, they are printed on the insurer's own form, and they remove most of the delay in most families. What they do not do is replace a guardianship arrangement, a will or a trust. A trustee clause names a person; it does not say what the person may spend the money on, whether the child receives it at 18 or 25, or who takes over if the trustee dies. Those terms are legal drafting, and the contract is not the place where a family's guardianship arrangements are made.

This is also the page's reminder that a life insurance contract is insurance, not an investment, and that the questions here are about where a death benefit lands rather than about what a contract is worth. The strategy is the Canadian application of the approach known as The Infinite Banking Concept®, originated by R. Nelson Nash; the mark belongs to Infinite Banking Concepts, LLC, with which this practice has no affiliation. Where a household follows the strategy, the designation on the contract deserves the same attention as any other, because a death benefit that lands with the wrong person for the next twelve years is the opposite of Infinite Financial Sovereignty®, the state of holding the highest practical level of control over the capital-flow function in one's own affairs.

What happens when the beneficiary cannot be found?

The insurer holds the money, looks for the person, and after a time set by statute hands it to the province, which keeps it for the person who has a right to it. Nothing is forfeited by the delay, but nothing is paid either. In Quebec the regime is the Unclaimed Property Act, chapter B-5.1.

Section 1 of that Act states its purpose, which is to facilitate the recovery of unclaimed property by right-holders and to ensure that property whose right-holders remain unknown or untraceable is delivered to the State. Section 3 lists, among the property considered unclaimed where the right-holder is domiciled in Quebec, the insured amounts due under a life insurance contract where no claim or transaction has been made and no instructions have been given by the right-holder in the three years following the date on which they became due or payable.

Section 5 requires the debtor or holder, within the six months preceding the delivery date, to give the right-holder at least three months' written notice describing the property. Section 6 then requires delivery of the property to the Minister in the first quarter following the end of the calendar year in which it became unclaimed. Section 12 relieves the holder from liability towards the right-holder for injury resulting from the performance of those obligations, which is the statutory statement that an insurer who followed the procedure has done what it owed.

Section 30 is the part a family needs to know. A right-holder may recover the sums delivered from the Minister, and that right is not subject to prescription except for a sum below a small amount the Act sets, which is prescribed by ten years from the date of delivery. Section 62 provides that the Minister of Revenue is responsible for the administration of the Act, which is why the search for unclaimed property in Quebec is made with Revenu Québec. Every common law province runs a comparable regime, with a holder's duty to search and notify, a transfer to a provincial administrator after a set period, and a right of recovery; the statute and the period in each province are confirmed in that province, and British Columbia's could not be read at its source on the review date, so it is not named here.

What happens when no beneficiary survives?

The money goes to the estate and waits. A designation does not survive the person it names, and where no contingent beneficiary was recorded the statute sends the money to the succession in Quebec and to the insured's personal representative in a common law province. That outcome arrives by accident, and the fix is a line on a form.

Article 2447 of the Civil Code of Quebec presumes that the designation of a beneficiary was made on the condition that the beneficiary exists when the proceeds of the insurance become payable. A beneficiary who died first, therefore, was never entitled to anything, and the designation falls with the person. Article 2456 then provides that insurance payable to the succession, or to the assigns, heirs, liquidators or other legal representatives of a person, forms part of the succession of that person, and article 2455, which keeps a sum payable to a beneficiary out of the succession, has nothing left to apply to.

Section 63 of the British Columbia Insurance Act, headed predeceased or disclaiming beneficiary, reaches the same place by a different route. Where a beneficiary predeceases the person whose life is insured and the contract or a declaration makes no other disposition, the share passes to the surviving beneficiaries and, where there is none, to the insured or the insured's personal representative. The personal representative is the estate, and the estate is where the money then sits.

A contingent beneficiary changes all of this for the price of writing a second name. The form asks for one. Most people leave it blank because the first beneficiary is a spouse and the possibility of the spouse dying first is not something anybody fills in a form to contemplate. A contingent designation is not a promise about who will live longer; it is an instruction for the case where the first line fails, and the case does arrive.

What does it cost when the estate receives the money?

Time, fees and exposure. Money that forms part of the succession in Quebec, or of the estate in a common law province, is administered with everything else, waits for the liquidator or the executor, is available to the estate's creditors, and in a common law province passes through probate with its fee.

In Quebec the succession is settled by a liquidator under the Code, with an inventory, a notice to creditors and a period during which the debts are paid before anything is distributed. A death benefit that entered the succession under article 2456 waits through that period and is counted in it. In a common law province the executor obtains a grant of probate, and the fee the province charges on the grant is calculated on what the estate holds, which now includes the insurance money. A designation that kept the money out of the estate would have kept it out of that calculation.

The creditor exposure is the consequence this page does not restate, because it has its own page. Money inside the succession or the estate answers the debts of the person who died on the same footing as any other asset, and the designation and creditors page sets out the statutes, the protected classes and the timing rules in full. The short version is that an estate receiving a death benefit by default has lost the one characteristic that made the designation worth making.

Two further consequences follow from the estate receiving it. In Quebec, what the family patrimony does and does not do to a designation is set out on its own page, and the interaction between a will and an insurer's file is on the Civil Code page. Neither is repeated here. The point for this page is narrower: an estate is not a person, no exemption is written around it, and a death benefit that lands there by default is subject to all the delay and all the claims the designation existed to avoid.

Who this suits, and who it does not

It suits a parent who has written a child's name on a designation form and never asked who would actually receive the cheque. It suits a Quebec family that has never discussed tutorship or a testamentary trust with a notary, a household whose form has a blank where the trustee should be, and anybody with no contingent beneficiary recorded.

It does not suit a family looking for the contract to settle its guardianship arrangements, because the contract cannot do that and this page has not pretended otherwise. Who raises a child, who administers the child's property, on what terms and until what age are questions answered by a will, a trust and a mandate drawn by a notary or a lawyer, and the insurer's form only records the name of what those documents create. It also does not suit anybody wanting to know what their own contract says, because that is answered by the insurer in writing.

Everything here is written by a person paid by commission from an insurer when a contract is issued, and the practice's interest in the outcome is stated at the foot of every page. Insurance is insurance, not an investment, and the mechanics described here are characteristics of a contract rather than reasons to own one. The general rules on designation, revocation and receipt by the insurer are on the Civil Code page, and every legal question raised here belongs to a lawyer or, in Quebec, to a notary.