What happens to your RRSP on death?

March 2, 2015 Hull & Hull LLP Estate Planning, RRSPs/Insurance Policies 0 Comments

Throughout the course of lives, most of us make sizeable contributions to our RRSPs. We do this in order to minimize our overall taxes payable and to plan ahead for our retirement.

With both tax minimization and future planning on our minds during this year’s RRSP season, it might be worth considering, not only this year’s contribution, but also what will happen to your RRSP upon your death. In many cases, the failure to properly plan ahead for the disposition of one’s RRSP can have significant tax consequences for your estate.

Due to provisions contained within the Income Tax Act (Canada) (the “ITA”), the general rule is that your assets, including your RRSP, will be treated as though they were disposed of at fair market value immediately prior to your death.  That fair market value amount must then be recorded as income on your terminal tax return, and will be taxable at your marginal rate of return. Depending on the value of your RRSP at time of your death, the tax implications of this inclusion can be quite substantial.

With proper planning, however, these tax implications can be minimized and sometimes even eliminated entirely. An exception to the general rule exists where a deceased designates a “qualified beneficiary” for his or her RRSP, such that a tax deferred rollover may be applied.

A “qualified beneficiary” for the purposes of the ITA includes:

  1. The deceased’s spouse;
  2. The deceased’s child or grandchild, provided that child or grandchild is:
  3. a minor
  4. mentally or physically infirm.

The Canada Revenue Agency has published a fact sheet titled “Death of an RRSP Annuitant” that provides more detailed information about the tax treatment of your RRSP on death and the benefits of nominating a qualified beneficiary which can be accessed here.

Thank you for reading,

Ian Hull


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