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When an RRSP annuitant (holder) passes away, it is often possible to roll over the RRSP to a beneficiary on a tax-deferred basis. If the beneficiary is a spouse, common-law partner or a financially dependent child or grandchild with a mental or physical disability, the beneficiary can request that the proceeds roll over to the beneficiary’s RRSP or RRIF.

A child or grandchild with a disability is considered financially dependent if they ordinarily lived with the RRSP annuitant and had a prior year net income of less than the basic personal amount plus the disability amount ($19,226 for 2015).

What is a rollover? Who qualifies for it and how is it carried out?

Under the federal Income Tax Act (ITA), a tax-deferred rollover occurs in two parts. When an RRSP annuitant dies, they are deemed to have received their RRSP assets just before death. This generally means the RRSP value at the time of death is included in the taxable income of the deceased for the year of death.

However, if the beneficiary is a “qualified beneficiary” (a spouse, common-law partner or financially dependent child or grandchild), on receipt of the proceeds, the income inclusion is normally transferred from the deceased to the beneficiary and is reported on the beneficiary’s tax return for the year. This first step of the rollover process is referred to as a “refund of premiums.”

The second part of the rollover process is the tax-deferral part. Where a spouse, common-law partner or financially dependent and disabled child/grandchild contributes the amount received to an RRSP or RRIF in the year of receipt (or within the first 60 days of the following year), the spouse, common-law partner or child/grandchild can claim a tax deduction under section 60(l) of the ITA to offset the taxable income inclusion. RRSP contribution room is not required for this deduction and the result is a tax-deferred rollover.

For example:

Trevor recently died in Ontario. On Trevor’s RRSP contract, his spouse, Nicky, is named sole beneficiary. Because Nicky is a qualified beneficiary, she would qualify for a refund of premiums to transfer Trevor’s date-of-death income inclusion to Nicky. To eliminate tax on receipt of the proceeds, the RRSP assets are directly transferred to Nicky’s RRSP. At tax filing time, Nicky receives a T4RSP tax slip that requires her to include the date-of-death RRSP amount in her taxable income, but she offsets this amount with a 60(l) tax deduction.

The above rollover is commonly seen when a qualified beneficiary is designated as beneficiary on an RRSP application. Where this occurs, the proceeds normally bypass the deceased’s estate, reducing probate fees (where applicable) and avoiding estate creditors and complex estate settlements.

Estate planning and tax planning usually intersect. This can have significant property and tax implications for the naming of non-spouse beneficiaries on registered plans. This is relatively easy if you intend to transfer all your wealth to your surviving spouse, including the full tax-deferred rollover of a registered plan. But commonly, children are named as beneficiaries of both the estate and any registered plans. This usually helps avoids probate tax on the registered plan as well, keeping it out of the reach of the deceased’s creditors, speeding the release of the proceeds and perhaps reducing estate administration costs. (For the sake of discussion, let’s assume no minor children or disabilities to contend with, which would add more complexity to the analysis.)

In most cases, such beneficiary designations will contribute to an efficient estate transfer. But sometimes unexpected results can arise. Here are some examples.

Suppose you name your son, Alfonso, and daughter, Maria, as beneficiaries of both your estate and RRIF, but Alfonso predeceases you. Also suppose Alfonso had two sons. Since you did not file a detailed beneficiary designation, with contingencies, the full RRIF proceeds will likely go to Maria after your passing. (Alfonso and Maria were contingent beneficiaries on the original designation, so to go beyond that would have been a third-stage designation.)

But, if your Will had been drafted with the common phrasing used to pass inheritances down generations (“issue per stirpes”), the formal estate would be split evenly between Maria on one side, and Alfonso’s two sons on the other. However, the RRIF proceeds would be considered income in your terminal year. (No rollover exceptions for spouse, minor child or child with a disability apply here). The tax liability is a debt to be borne by your estate, effectively half imposed on each of Maria and her two nephews. Maria could choose to compensate her nephews for the disproportionate results, but is not legally required to do so.

Naming your estate as beneficiary

Things get much more challenging where there are minors, disabilities, second marriages and blended families. You can alleviate many of the foregoing concerns by naming your estate as beneficiary of your registered plan, coordinated with a properly drafted Will.

Depending on the tax positions of your estate and beneficiaries, this could mean more or less tax to be paid. And of course, probate tax and other estate implications may result. That said, estate planning is about taking care of the people who survive you so this may be a small price to pay to achieve a much greater degree of certainty.

Source: Wilmot George, “What Happens When an RRSP Annuitant Dies,” May 26, 2015,




Dwight Jefferson, CIMA®
Senior Vice President
Portfolio Manager
Tel.: 604.640.0555 • Email

Tyler Steele, CFA
Senior Vice President
Portfolio Manager
Tel.: 604.640.0554 • Email

Paul Rietkerk, CIM, FMA
Associate Portfolio Manager
Tel.: 604.640.0562 • Email

Neil Kumar
Associate Investment Advisor
Tel.: 604.640.0406 • Email

Wendy Lloyd
Tel.: 604.640.0556 • Email

Jessica Dewey
Tel.: 604.640.0405 • Email

Brenda Geib, BA
Tel.: 604.640.0559 • Email

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Vancouver, BC V6C 2B5

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