Does a Beneficiary Designation Avoid Probate for an RRSP in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Naming a beneficiary generally does not take an RRSP out of the deceased's final tax return, unless a qualifying survivor receives a refund of premiums, which reduces the deemed amount. Whether it keeps the plan out of probate or away from creditors is a question of provincial law that varies, so confirm it locally. For tax, the CRA treats the annuitant as having received the plan's fair market value immediately before death, reported on the final return.
The deceased bears the tax on the full value even when a named beneficiary receives the money, unless that beneficiary is a qualifying survivor who receives a refund of premiums. If the RRSP names the estate or has no designated beneficiary, the whole value is the deceased's income and the estate bears the tax.
A spouse or common-law partner designated as sole beneficiary avoids the deemed receipt if all property is transferred to their RRSP or RRIF by December 31 of the year following the year of death. A person who receives RRSP money can be jointly and severally liable with the deceased for the part of the deceased's tax that relates to that amount. A lawyer or accountant can confirm how this works for your plan.
Key takeaways
- The tax on an RRSP is generally reported on the deceased's final return even when a named beneficiary receives the money, except for amounts a qualifying survivor receives as a refund of premiums.
- Whether a named beneficiary keeps an RRSP out of probate or away from creditors is a provincial question that varies, not a federal tax rule.
- If the RRSP names the estate or has no designated beneficiary, the whole value is the deceased's income and the estate bears the tax.
- A spouse or common-law partner named as sole beneficiary can avoid the deemed receipt if all property is transferred to their RRSP or RRIF by December 31 of the year following the year of death.