RRIF Beneficiary Rules and Tax on Death in Ontario

A registered retirement income fund, or RRIF, is often one of the largest assets a person leaves behind. Many people assume it simply goes to whoever is named on the form, and often it does. But the details of the designation, and the tax that follows, are where families run into trouble.

This article explains in plain terms how a RRIF beneficiary designation works in Ontario, what can override or complicate it, and what the estate trustee and the recipient should confirm on tax before money is paid out or distributed.

How a RRIF passes to a named beneficiary

Under the Succession Law Reform Act, a participant in a plan, such as an RRSP, RRIF or pension, may name a person to receive the benefit payable on their death. The designation can be made by a signed instrument or by will, and it can be revoked the same way.

A designation in a will takes effect only if it relates expressly to a plan. A general sentence leaving everything to someone is not enough to direct a RRIF.

Conflicting or changed designations

People change their minds, and paperwork piles up. A later designation revokes an earlier one to the extent they are inconsistent. The plan administrator is discharged by paying the person named in the latest designation made under the plan's terms.

If someone else managed the person's finances during incapacity, the options are narrow. An attorney under a continuing power of attorney for property, or a guardian of property, may make a designation when a plan is converted, renewed, replaced or transferred, but this is a limited power tied to those events. A continuing power of attorney also cannot be used to make a will.

• Check the most recent designation on file with the plan holder, not just an old copy.
• Check whether a will says anything about the plan, and whether it does so expressly.
• Ask the plan administrator what it has on record and what it needs to pay.

What the tax result depends on

On death, the deceased is generally treated as having sold all their capital property just before death at fair market value, and any gain or loss is reported on the final return. Property passing to a surviving spouse or common-law partner who lived in Canada at the time of death may not produce a capital gain or loss.

The CRA lists most gifts and inheritances among the amounts you do not report as income. Do not assume that this answers the question for a RRIF. How the fund is taxed on death, who reports it and which return it lands on depend on the facts, including whether the recipient is a spouse or common-law partner. An accountant can confirm the result for your situation.

Before distributing property, an estate's legal representative should get a clearance certificate (Form TX19), and without one they are personally liable for the deceased's unpaid tax, up to the value of the property distributed.

When a named beneficiary can still be affected

If the deceased did not make adequate provision for the proper support of a dependant, the court may order support from the estate. When a court sets that support, plan designations are added back to the net estate. A dependant is a spouse, parent, child, brother or sister whom the deceased was supporting or was legally obliged to support.

A dependant support application must be made within six months after letters probate or letters of administration are granted. The court may allow a later application against the portion of the estate that has not been distributed. Common-law partners do not inherit under the Succession Law Reform Act when there is no will, and their remedy is a dependant support claim.

What to do next

• Locate the RRIF statements and the latest beneficiary designation.
• Notify the plan administrator and ask what documents it requires.
• Speak with an accountant about the final return and how the plan will be reported.
• Obtain the clearance certificate before the estate distributes property.
• Talk to an estate lawyer if the designation is unclear, disputed, or a possible dependant has not been considered.

Frequently asked questions