Naming An RRSP Beneficiary

An RRSP allows for a designation of a beneficiary who will receive the proceeds upon the death of the plan-holder.  Naming your RRSP beneficiary is very important.  Upon your death the market value of the RRSP can be taxed as earned income on your terminal tax return depending on who you name.

Depending on the value, RRSP holdings can easily be taxed at over $100,000 (40% or more of your plan) unless you name a “qualified beneficiary.”  You can name your beneficiary directly on your RRSP application (the easiest way) or you can make the designation in your will.

Qualified RRSP Beneficiary

Taxes can be deferred by naming your spouse (by marriage or common law) or your financially dependent children or grandchildren as qualified beneficiaries.

Spouse: In most cases this is the easiest solution.  The RRSP is included on the terminal tax return but there will also be an offsetting deduction for the same amount so no tax is paid on the rollover.  The actual transfer must be made before December 31 of the year following the death of the planholder.  The spouse will only pay tax on withdrawals from the plan.

Dependent Children: The child must be financially dependent on you at the time of your death and either a minor or mentally or physically infirm.  In the case of a minor child who is not infirm a term annuity must be purchased with the plan assets that will make payments each year until the child reaches age 18. For a child who is infirm, the proceeds can be transferred on a tax-free basis to his or her own RRSP or can be used to buy an annuity.  In both cases, taxes are paid on the payments or withdrawals made.

Other Beneficiaries

Adult child, other relative, or friend: No tax-deferred options areavailable if your children are adults and not infirm, even if they are financially dependent on you.  Proceeds will be fully taxed on death.  The entire RRSP proceeds will go to the beneficiary.  The tax liability will go to the estate, which will likely leave less money than you intended for your other beneficiaries so this must be carefully considered.

Charity: You can name a registered charity as your RRSP beneficiary.  The final tax return will be entitled to receive a donation credit for the value donated.  This can offset the tax owing.

Estate: Taxes will be paid on the final return for the value of the RRSP.  The assets will also be subject to probate fees.

Conclusion

When you convert your RRSP to a RRIF it becomes a separate plan so you need to make sure you name an RRSP beneficiary again.

Naming a beneficiary is a very important part of tax and estate planning.  The RRSP (or RRIF) will not form part of the estate assets, which may require probate.  The assets will transfer directly to the beneficiary, which may result in significant savings.

Finally, review your RRSP beneficiary designation whenever there is a change in your personal circumstances.


19 Responses to Naming An RRSP Beneficiary

  1. My husband and I are Successors, not Beneficiaries
    on each other’s RRSP’s.
    Why are there the two terms?. And what
    happens if you designate a spouse as
    a beneficiary.
    Thank You.

    • Hi Cathryn: It is my understanding that a successor is used for a RRIF. A RRIF gives the option as a beneficiary to have the spouse receive the proceeds as a lump sum – either collapsed (taxes will be payable) or rolled over to the surviving spouse’s RRSP or RRIF and taxed on withdrawal.
      With the successor designation the surviving spouse continues to receive the RRIF payments originally set up by the annuitant.

  2. If the spouse is qualifed beneficiary and designated in the plan or will (rrsp paid out before exempt period) the rrsp payout will not be included in the terminal return of the deceased. It will be included in the spouse’s tax return(T4RSP) and will be offset with contribution tax receipt.

  3. Thanks for the insight. Recently I was wondering if I could name an animal shelter in town as a beneficiary for my RSP and this says I can. Keep up the good work!

  4. Thank you for the article. I read studies several sources on the RRSP’s already, and it is still not clear to me, whether any tax is withheld in addition to the estate accepting the liability. Could you please help me understand? My mother passed away. I am a beneficiary for 50%, the other 50% go to my dad. Let’s say the sum is 100K. I understand that 50K will be added to deceased’s taxable income for past year. Will I receive 50K minus this tax? Is there another type of tax for withdrawal? Will it be added to my taxable income for the year?

    I am very confused.

    Thank you in advance!

  5. Hi Amarantha. I’m sorry to hear about your mother. I’ll try to answer your questions.
    1. If the estate is named as beneficiary, the RRSP proceeds are taxable on the final return of the deceased planholder.
    2. If there are enough assets after taxes are paid, you will get the full $50,000 tax free. If not you will get the $50K less tax.
    3. Your dad and the executor jointly can elect in writing to have RRSP proceeds paid to the surviving spouse. This election must be attached to his tax return and specify that he is electing to become the annuitant of the RRSP. It is then rolled over on a tax free basis.
    4. You will not have to pay any tax yourself on the amount you receive and it will not be added to your taxable income.
    I hope this answers your questions. Good luck.

  6. When the will is going to probate do you require the rrsp(with named beneficiary) to be included in probate or can the executors release it to the beneficiary before probate.
    The rrsp are worth approx 100,000.00.
    Only one executor went with is wife to the investment rrsp person and got the papers for the beneficiary to sign.

    • @Jayne: If the beneficiary of the RRSP is named (not estate) it will bypass probate and the entire amount goes to the beneficiary. However, taxes will still have to be paid if it is not a “qualified” beneficiary where the RRSP is rolled over into their name.

  7. In April 2012 my ex’s mother died, and I am helping her with her mother’s estate. In her Will my ex’s mother named her sons and daughter as beneficiaries so her estate would be divided “…in equal shares per stirpes…” Both of her sons predeceased her, one was unmarried with no children while the other had been married with four daughters. I know that my ex’s mother’s estate is divided whereby my ex receives 50% of the estate, and each of her nieces receive 12.5%. The issue is not how her estate is divided, rather, how her RIF is divided.

    At the time my ex’s mother set-up her RIF, in the documentation at the bank, she named her daughter and her married son as beneficiaries. From what I have read it appears the division of assets from my ex’s mother’s RIF is separate from the Will governing the disposition of her estate, and is therefore not governed by the same stipulation. In other words, the entire RIF, after taxes, passes to my ex and nothing goes to her nieces.

    Is this correct?

    • @George: In my opinion you are correct. The proceeds of a RIF plan are paid to the surviving beneficiary – in this case your ex-wife. Look at the legalize on the beneficiary document from the bank.

      Beneficiary designations are governed by provincial law so you should clarify this with the probate lawyer, but I think the only exception would be Quebec.

  8. I was named the beneficiary of an RRSP.
    Now, the will is being contested. Can the RRSP be contested? Also, our lawyer is asking me why “I think that I was named beneficiary?”, and to send him any documentation that I have on this to him.
    Do I really have to respond to this and try to explain why I was named?
    I have no idea why I was named, and, there really is no explanation why. Maybe just because of all my siblings, I was a favorite, and was thought that maybe I could use the money more than the rest?
    What should I do?
    I will be trying to talk to a local lawyer in the coming week.
    Thanks

    • @Rookie: Naming a beneficiary on the RRSP documents is legally binding. If you are not a spouse or dependent child, tax still has to be paid on the proceeds, but it avoids the amount being added to other assets when it comes to probate (probate fees are usually a percentage of total assets so this can save money).

      In my opinion, you don’t have to justify why you were named. If I were you however, I would get legal council as it sounds like things could get nasty.

      Good luck to you.

      • Wow, thanks Boomer for the quick reply.
        I am not a dependant. When my father passed last year, I did receive the RRSP, plus the TFSP monies.
        The RRSP taxes have been paid by the estate.
        The will is being contested by two brothers right now, and, does look to be getting ugly.
        It is mine, and another brothers lawyer who is asking for me to send him an explanation as to why I think I received this.
        Also, finally, I do plan on getting legal counsel, besides the one I am sharing with the beneficiaries of the will.
        Again, thank you for your input. Very much appreciated.

        • @Rookie: I wonder if you are having your current problems because, after paying fees and taxes, you may have ended up with the bulk of the estate. (?)

          This is one issue people have to take into account when they are designating beneficiaries and thinking they are dividing assets evenly.

  9. I understand you can name a beneficiary on registered accounts (eg. RRSPs, TFSAs) but not on savings or investment accounts. By naming a beneficiary such assets are not part of the deceased’s estate or will, and, in general, can’t be contested.

    Can you do something similar for ordinary bank / investment accounts – or must they become part of the estate (and will) and subject to probate.

    • @Sammy: There’s no provision to name a beneficiary on regular accounts and investments (besides your will). The only other alternative is to make the accounts joint, but since this can cause all kinds of other issues, it shouldn’t be used just to save on probate fees.

  10. Hi my sister changed her rrsp’s 2 weeks prior to death can her husband contest this even if he is sole heir

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