- A plan administrator is discharged by paying the person named in the latest RRSP designation, and a later designation revokes an earlier one to the extent they conflict.
- Life insurance paid to a designated beneficiary is not part of the estate, but if no designated beneficiary survives it is payable to the estate.
- A named beneficiary does not fully shield the money from a dependant's support claim.
- RRSP value at death is generally taxed on the final return unless a rollover or other relief applies.
A family opens the file after a death and finds a problem. The will leaves everything equally to the children, but the RRSP or life insurance policy names one person, or an ex-spouse, or no one at all. Who gets the money, and does the estate still have to deal with it?
The general rule is that a valid beneficiary designation controls the payment, not the will. But there are exceptions, and the estate may still face tax, dependants' claims and other issues. This article explains the main points for Ontario.
RRSP designations versus the will
Under the Succession Law Reform Act, a plan administrator, such as the company holding an RRSP, is discharged by paying the benefit to the person named in the latest designation, and the designated person can enforce payment. The administrator does not have to look to the will.
If there are several designations, a later designation revokes an earlier one to the extent they conflict. Revoking a will also revokes designations that were made in that will.
RRSP proceeds paid to a designated beneficiary are removed from the owner's estate, and the Ontario Court of Appeal has held they are not available to the estate's creditors.
Life insurance designations
For life insurance, the Insurance Act lets an insured alter or revoke a beneficiary designation by a declaration. A designation in a will has no effect against a designation made later than the will. If the will is revoked, the designation in it is revoked too.
Once a beneficiary is designated and the insured dies, the insurance money is not part of the estate and is not subject to the claims of the insured's creditors. If no designated beneficiary survives, the money is payable to the insured's personal representative, so it falls into the estate.
An insured can designate a beneficiary irrevocably, but only in the contract or in a declaration filed with the insurer during the insured's lifetime. An irrevocable designation attempted in a will has the effect of an ordinary designation.
Who is paid, and when the estate is involved
| Situation | General result |
|---|---|
| RRSP names a person | The administrator pays that person, who can enforce payment. |
| RRSP changed later by a new designation | The later designation controls where it conflicts. |
| Insurance names a surviving beneficiary | Money is outside the estate and outside creditors' reach. |
| Insurance beneficiary has died first, no one else named | Money is payable to the personal representative and becomes part of the estate. |
| Designation written in a will, and a later declaration exists | The later designation prevails over the will's. |
Whether a particular document is a valid designation, and which one is the latest, are questions of fact. If the paperwork is unclear, a lawyer can review it before payment is made.
What the estate may still face
Naming a beneficiary does not fully shield the money. Amounts payable under a beneficiary designation and life insurance proceeds are deemed part of the estate for the purposes of a dependant's support claim. A spouse or other dependant who believes they were not adequately provided for may therefore look to these funds.
Tax is the other issue. For an unmatured RRSP, the fair market value of the property at the time of death is included in the deceased's income for the year of death. If all the RRSP property is paid to a surviving spouse or common-law partner and transferred to their RRSP by the end of the year following the year of death, the spouse claims a deduction and the amount reported on the final return is reduced. A financially dependent child or grandchild who receives RRSP amounts can also reduce the amount taxed on the final return, using Form T2019.
Income earned in a registered plan after death is reported on a T4RSP in the name of the beneficiary or the estate, not on the deceased's final return. A legal representative who distributes estate property before getting a CRA clearance certificate can be personally liable for unpaid tax, up to the value of the assets distributed. Because the final return tax is generally paid from the estate, a beneficiary who receives an RRSP outside the will may leave the estate short of cash. An accountant can help estimate this.
What to do next
- Ask each RRSP issuer and insurer for the current beneficiary designation on file and its date.
- Find the policy and plan documents, and any declarations that changed the beneficiary.
- Check whether the named beneficiary is alive, since insurance may fall into the estate if no designated beneficiary survives.
- Have an accountant estimate the tax on the final return from RRSP value at death.
- Hold back estate distributions until tax is sorted and any dependant's claim is considered.
- Speak with an Ontario estates lawyer if the designation and the will conflict or a family member challenges it.
Everyone involved is better off with a clear picture of which assets pass through the will and which pass outside it before decisions are made.
Frequently asked questions
Does the will override an RRSP beneficiary designation?
Generally, no. The plan administrator is discharged by paying the person named in the latest designation, and that person can enforce payment. A later designation revokes an earlier one to the extent they conflict.
Can creditors reach an RRSP or insurance paid to a beneficiary?
RRSP proceeds paid to a designated beneficiary are not available to the estate's creditors. Insurance money paid on a designation is not part of the estate or subject to the insured's creditors' claims.
What if the insurance beneficiary died before the insured?
If no designated beneficiary survives, the money is payable to the insured's personal representative, so it falls into the estate.
Can a dependant still make a claim?
Yes. Amounts payable under a beneficiary designation and life insurance proceeds are deemed part of the estate for a dependant's support claim. Whether someone qualifies depends on the facts.
Sources
- Succession Law Reform Act, R.S.O. 1990, c. S.26 (e-Laws) — Ontario e-Laws
- Amherst Crane Rentals Limited v. Perring (ONCA 2004) — ontariocourts.ca
- Insurance Act, R.S.O. 1990, c. I.8 (e-Laws) — Ontario e-Laws
- Insurance Act, R.S.O. 1990, c. I.8 (ontario.ca) — Ontario e-Laws
- Canada.ca – Unmatured RRSP — canada.ca
- Canada.ca – Death of an RRSP annuitant — canada.ca
- Canada.ca – Apply for a clearance certificate — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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