Can an Estate Be the Beneficiary of an RRSP in Canada?

Many people name their estate as RRSP beneficiary, or never name anyone, without thinking about tax. The result is not a legal problem, but it can shape who pays and how much is left for your family.

This article explains how the CRA treats an RRSP paid to the estate, who ends up bearing the tax, and the situations where the outcome can be different.

This article covers Canadian federal tax law, which applies in every province.

Yes, an estate can be the beneficiary

An RRSP can name the estate, or can have no designated beneficiary. In either case the whole fair market value is the deceased's income on the final return, and the amount paid to the estate forms part of the estate that bears the tax.

Whether naming a beneficiary changes probate or creditor exposure is a question of provincial law, and it varies. That is outside federal tax law, so ask a lawyer in your province.

How the tax works on death

When the annuitant of an unmatured RRSP dies, the CRA treats the annuitant as having received, immediately before death, an amount equal to the fair market value of all property in the plan. It is reported on the final return. The Income Tax Act sets this out in s. 146(8.8).

The amount is shown in box 34 of a T4RSP issued to the deceased for the year of death. It is added to the deceased's other income for that year and taxed at graduated rates, with provincial or territorial tax on top.

This is why a large RRSP can push the final return into higher brackets. The tax is due even though the money has not been received in the deceased's hands.

Who ends up paying

As a general rule, the deceased bears the tax on the full RRSP value on the final return, even when a named beneficiary actually receives the money. The deemed amount is added to the deceased's other income for the year of death and taxed at graduated rates. A qualifying survivor who receives a refund of premiums is an exception to this rule.

The deemed receipt also does not apply where a spouse or common-law partner is designated in the RRSP contract or the will as sole beneficiary and all property is transferred to the spouse's RRSP/RRIF (or otherwise rolled over) by December 31 of the year following the year of death. The spouse then reports the amount received.

If the estate cannot pay, a person who receives an RRSP amount and is not the annuitant is jointly and severally liable with the last annuitant for the part of the tax attributable to that amount under s. 146(8.8). For a RRIF the same idea applies under s. 146.3(6).

Tax withheld when money leaves the plan may not cover the tax owing, because the withholding rate is not the tax bracket rate, and the balance is payable when the income is reported.

Ways the result can differ

• Spouse or common-law partner rollover: the deemed receipt does not apply where the spouse or partner is designated in the contract or will as sole beneficiary and all property is transferred to the spouse's RRSP or RRIF, or otherwise rolled over, by December 31 of the year following the year of death.
• Refund of premiums: a qualifying survivor who receives a refund of premiums includes it in their own income and can deduct it by transferring it to a registered plan.
• Payment to the estate: it is a refund of premiums only if a qualifying survivor is a beneficiary of the estate and the legal representative and survivor jointly file Form T2019.
• Decrease in value: if the plan falls in value before final distribution, the legal representative can ask to carry the decrease back to the final return using Form RC249.

The decrease-in-value deduction is generally unavailable if the plan held a non-qualified investment after death, or if the final distribution is made after the end of the year following the year of death, although the CRA may waive the second case. Increases in value after death are included in the income of whoever receives them, for the year received.

What to do next

• Check your RRSP beneficiary designation and your will, and see whether they match what you want.
• Consider whether a spouse, partner, or dependent child could use a rollover.
• Keep enough liquid assets in the estate to cover tax on the final return.
• Tell your executor where the plan statements are.
• Review the designation after any marriage, separation, birth or death in the family.
• Speak with a lawyer or accountant before changing designations.

Frequently asked questions