RRSPs, TFSAs and Life Insurance: Are They Subject to Estate Tax?

Registered plans and life insurance are often described as passing outside the estate. For Ontario's Estate Administration Tax, that is often true, but it depends on who is named to receive the money.

This article explains when RRSPs, RRIFs, TFSAs and insurance stay outside the estate value, when they are pulled back in, and what that can mean for the tax.

What goes into the estate value

Estate Administration Tax is paid by the estate when an estate certificate is issued. The value of the estate is the value of all property that belonged to the deceased at death, less encumbrances on real property.

Ontario lists the included assets as real estate, bank accounts, investments including TFSAs, RRSPs and RRIFs, vehicles, property held in another person's name, business interests and insurance proceeds payable to the estate. Ontario also lists the excluded ones, which include RPPs, RRSPs, RRIFs and TFSAs with a beneficiary designation. The difference is the designation.

Registered plans with and without a beneficiary

Registered plans such as RRSPs, RRIFs and TFSAs are counted in the estate where there is no beneficiary designation, for example where they are payable to the estate. With a designated beneficiary, they are excluded.

Whether a named beneficiary is valid and still in place depends on the plan documents and the facts. Check the latest forms on file with the plan provider, and ask a lawyer if the paperwork is unclear.

Life insurance

Ontario includes insurance proceeds payable to the estate in the estate value. If a policy names the estate as the recipient, or if no one else is named and the proceeds go to the estate, the money is added to the value.

If a policy pays a named person directly, it is not on Ontario's list of included assets. How a particular policy is set up is a question about its wording, so read the policy and the insurer's records, and confirm with a lawyer if you are not sure.

Ontario also excludes the CPP death benefit from the estate value.

What it can mean for the tax

For applications on or after January 1, 2020, an estate of $50,000 or less is exempt, and the tax is $15 for each $1,000, or part thereof, above $50,000. Only the part of the estate value above $50,000 is taxed at that rate, so adding an asset raises the tax once the total goes past $50,000.

For example, an estate valued at $100,000 pays $750. If an RRSP with no designation is added and the estate value becomes $250,000, the tax is $3,000. With a named beneficiary on that RRSP, it would stay out of the calculation.

Ontario also says funeral expenses, lawyer fees, credit card debt and similar debts cannot be deducted from the estate value. A large debt does not offset a plan that is payable to the estate.

What to do next

• Collect the latest statements and beneficiary forms for every RRSP, RRIF, TFSA and pension.
• Collect each life insurance policy and confirm who is named to receive the proceeds.
• Note which items are payable to the estate, since those are counted.
• Use fair market value at the date of death, supported by statements.
• List the figures when you apply, because Form 74A asks for real property, personal property and total estate.
• File the Estate Information Return within 180 calendar days after the certificate is issued.

If you find assets after the certificate issues, a sworn statement of their value must be filed with the registrar within six months, and tax on them is payable when that statement is delivered. An amended return is due within 60 days after the statement is delivered to the court.

Income tax on registered plans is a separate subject from Estate Administration Tax. An accountant can help with that side.

Frequently asked questions