RRSP Successor Annuitant vs Beneficiary in Ontario: Key Differences

If you hold a registered plan, or your spouse does, you have probably seen two similar-sounding choices on the form: a successor annuitant and a beneficiary. They are not the same thing, and the choice can affect who ends up in control of the money and how it is taxed.

This article explains the difference in plain terms, how Ontario's designation rules work, and the questions worth raising with your plan issuer and an accountant. The exact options depend on your plan contract, so treat this as a map rather than a final answer.

Two different ways to pass a plan on

A successor annuitant and a beneficiary are named for different purposes, and your plan contract and the issuer's forms set out how each role works. A beneficiary is someone named to receive the benefit that becomes payable on the holder's death. How the successor annuitant role works under your plan is worth confirming with the issuer and an accountant.

Which of these your plan offers, and who is allowed to be named in each role, is set by the plan contract and the issuer's forms. Ask the issuer for the wording rather than assuming.

• Successor annuitant: how this role works depends on your plan contract, so ask the issuer for the details.
• Beneficiary: the benefit is generally paid to the named person after death.
• Neither named: the plan falls back on other rules, which may involve the estate.

How a designation is made in Ontario

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 death. This can be done by 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 gift of everything you own in your will is therefore not a safe way to direct a plan.

If you make more than one designation, a later one 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. For that reason, the form on file with the issuer deserves regular attention.

Tax: the questions to ask

Tax treatment differs depending on the type of plan and who receives it. As a general backdrop, at death a person is treated as having sold their capital property just before death at fair market value, and any gain or loss is reported on the final return. Property passed 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 on that return.

Those are rules for capital property. How they sit alongside the separate rules for registered plans depends on your plan and your family situation, and an accountant can confirm it. Before an estate hands out property, the legal representative should also get a clearance certificate (Form TX19), because without one they can be personally liable for the deceased's unpaid tax, up to the value of what was distributed.

Where problems tend to arise

• Conflicting paperwork: an old form and a newer one can disagree, and the later designation prevails to the extent of the conflict.
• A will that does not mention the plan: a will designation counts only if it relates expressly to a plan.
• Powers of attorney: an attorney under a continuing power of attorney for property may make a designation when a plan is converted, renewed, replaced or transferred. Whether an attorney can do more than that depends on the facts and is worth confirming with a lawyer.
• Support claims: plan designations are added back to the net estate when a court sets dependant support, so a named beneficiary can be affected by a support order.

What to do next

• Ask each issuer for a copy of the designation currently on file.
• Confirm in writing which roles your plan allows and who may be named in each.
• Check that any will refers expressly to the plan if it is meant to direct it.
• Ask an accountant how the tax rules apply to your plan and family.
• Speak to a lawyer if the family is blended, separated or likely to dispute the result.

Frequently asked questions