RRSPs, TFSAs and Pensions With Named Beneficiaries in Alberta

Many people name a beneficiary on a registered plan or pension, and families often assume that means the money is simple to collect and out of the estate's way. Sometimes it is, but the tax and the paperwork still land on someone.

This article explains the general picture for a beneficiary or a personal representative in Alberta: how to find out who is named, what goes on the deceased's tax returns, and why the estate's debts and CRA still matter.

This article covers the law of Alberta.

Named beneficiary or estate: check the actual designation

Whether a registered plan or pension is paid to a named person or to the estate depends on the plan documents and the issuer's rules, so it is worth confirming how it applies to your situation with a lawyer. Any money that does come into the estate is part of what the personal representative uses to meet the estate's debts, if the estate has funds to do so. The wording of the designation, the plan type and the issuer's rules all matter, so the safest first step is to get a copy of the plan documents and the beneficiary record from each financial institution or pension administrator.

Rules for RRSPs, TFSAs and workplace pensions differ in their details, including how a spouse or partner may be treated. A lawyer or accountant can confirm how a specific plan works rather than relying on a general summary.

Tax on the deceased's final return

The legal representative is responsible for making sure the deceased's taxes are filed. Income from January 1 of the year of death up to the date of death is reported on the final return. Income earned after death is reported on a T3 trust return.

How a particular registered plan is taxed on death is a point to confirm with an accountant, because it depends on the plan type and who receives the funds. Do not assume that a payment to a named beneficiary is tax-free.

Debts, creditors and the estate

A personal representative has a duty to satisfy the debts and obligations of the estate. Balances owing to the CRA are paid out of the assets of the estate, and the CRA recommends paying balances before the estate is distributed.

Whether a creditor can reach a plan that passes to a named beneficiary is a separate question that depends on the type of plan and the law that applies to it. It should be confirmed with a lawyer before anyone assumes the money is beyond reach.

Where the estate's assets fall short of the valid money claims, claims are generally paid proportionately without preference, though other laws can change that and funeral and administration expenses have special treatment. If a bankruptcy applies, the federal Bankruptcy and Insolvency Act scheme of distribution governs.

Why the CRA clearance certificate matters

If the legal representative distributes assets without a clearance certificate, they are personally liable for unpaid amounts, up to the value of the assets distributed. A clearance certificate lets the representative distribute without the risk of being personally responsible, and liability then rests on the estate, trust, corporation, beneficiaries or others who received the assets.

• The CRA says an assessment can take up to 120 days if all necessary documents are provided, and it may need to audit first.
• If you hear nothing within 120 days, the CRA tells the representative to contact it.
• If new property is discovered later, another clearance certificate is needed before distributing it.

A representative also has duties to creditors beyond tax. They should give notice to claimants following the Surrogate Rules, and they are subject to the liabilities and duties of a trustee.

What to do next

• Gather statements for every RRSP, TFSA, pension and similar account, and ask each institution who is named.
• Keep a record of anything paid directly to a beneficiary so the tax returns can be prepared accurately.
• Confirm with an accountant how each plan is reported on the final return and the T3.
• List the estate's debts and tax balances before any distribution.
• Consider applying for a CRA clearance certificate before distributing assets.
• Speak with a lawyer if a creditor, a family member or a competing claim to the plan appears.

Frequently asked questions