RRSP and RRIF Accounts After Death: Tax and Beneficiaries in Ontario

An RRSP or RRIF is often one of the largest assets a person leaves, and it can also carry one of the largest tax bills. If you are an estate trustee or a surviving spouse, you need to know who receives the money and who pays the tax.

This article walks through the general rules, the rollover exceptions, and what changes when the estate is named as beneficiary.

Who receives the plan

A participant in a plan, such as an RRSP or RRIF, may designate a person to receive the benefit payable on their death. A designation made in a will is effective only if it expressly refers to a plan, either generally or specifically.

The plan administrator is discharged once it pays the benefit to the person named in the latest designation, unless it had actual notice of a later designation or a revocation. If you think a later designation exists, tell the administrator early.

The basic tax rule

The fair market value of the plan at death must generally be included in the deceased's income for the year of death, on the final return. Because that can push income into a high bracket, the tax can be a large share of the plan.

If the plan grows in value between the death and final distribution, the increase is generally included in the income of the beneficiary or the estate in the year it is received.

The deceased's legal representative must file a final T1 Income Tax and Benefit Return, and a T3 return may also need to be filed for the estate. The final return is due April 30 of the year after the death if the death occurred between January 1 and October 31, and the balance owing is due on the same date. If the death occurred between November 1 and December 31, the final return is due 6 months after the death, on the same calendar day as the date of death.

Different dates can apply in other situations. If the deceased or their spouse or common-law partner was running a business on the date of death, the final return is due June 15 of the year after the death for deaths from January 1 to December 15, or 6 months after the death for deaths from December 16 to 31, while the balance owing is still due on the normal payment date.

Rollover exceptions

If the whole RRSP goes directly into the survivor's eligible plan, the survivor reports the payment and claims a deduction equal to the amount transferred.

For refund-of-premiums transfers, the qualifying beneficiary must complete the transfer to an RRSP, RRIF, PRPP, SPP or eligible annuity in the year the refund is received or within 60 days after the end of that year. To transfer into an RRSP, the beneficiary must be 71 or younger at the end of the year of transfer.

When the estate is the beneficiary

If the estate is named as beneficiary but the spouse inherits from the estate, the deceased's legal representative and the qualifying survivor can jointly file Form T2019 to treat all or part of the estate's RRSP payments as a refund of premiums received by the spouse.

Money that goes through the estate is also exposed to the estate's debts, which are generally paid from the residuary estate unless the will says otherwise. Whether this applies to your plan depends on how it was set up, so it is worth confirming with a lawyer or accountant.

What to do next

• Get the latest plan statements and beneficiary designation from the administrator.
• Confirm the value of the plan at the date of death.
• Find out who qualifies for a rollover: spouse, common-law partner or a dependent child or grandchild.
• If the estate is the beneficiary and a spouse inherits, ask an accountant or lawyer about Form T2019.
• Note the 60-day deadline after year end for refund-of-premiums transfers.
• Make sure the plan's value is reported on the final return.
• Mark the final return due date that fits the date of death and whether a business was running.

Before distributing property they control, a legal representative must obtain a clearance certificate under subsection 159(2) of the Income Tax Act. If they distribute without one, they can be personally liable for unpaid amounts, but not for more than the value of the property distributed. The certificate is requested on Form TX19, Asking for a Clearance Certificate, but only after the returns are filed and the notices of assessment received.

Frequently asked questions