Why not just let them take the RRSP and be done with it

The situation

'Why not just let them take the RRSP and be done with it?' That was Erzsebet's question in the first phone call, and it is worth answering properly, because the instinct behind it is common and usually wrong.

Erzsebet was the executor of an estate that owed a disputed amount to the tax authority, somewhere between $150,000 and $400,000 depending on how the reassessments were resolved. The deceased had been a sales director with a substantial income in the years before death, and the estate held several assets: a locked-in registered retirement account worth a large share of the disputed amount, a joint bank account, an investment portfolio, and a modest amount of real property equity. Kayla, the deceased's adult daughter and the estate's residual beneficiary, was anxious to close the file. She had been fielding most of the collections calls, since Erzsebet forwarded anything that arrived, and by the time Erzsebet called us, Kayla had already started asking whether the estate could simply be wound up faster. Megan, a second beneficiary and Kayla's cousin who worked as a commercial pilot and had little patience for the file eating into her limited time at home between rotations, mostly wanted the process to stop generating letters, and had said as much at a family meeting Erzsebet described, a little wearily, as 'more about the stress than the money.'

The collections agent handling the file had sent a notice indicating an intention to garnish the registered account directly. Erzsebet, wanting to avoid a drawn-out dispute and the family tension it was creating, proposed simply authorizing the withdrawal and forwarding the proceeds. It felt like the fast, clean answer. She had priced out roughly what the account would net and thought it would cover most of the disputed balance in one transaction, closing the file within weeks rather than months. It would also have been the most expensive answer available to her.

A registered retirement account does not sit outside the tax system just because its holder has died. Under the deemed-disposition rule for registered plans, the fair market value of a deceased person's RRSP or locked-in account is treated as received immediately before death and included in the deceased's income for the year of death, unless it rolls over tax-deferred to a surviving spouse, common-law partner, or a financially dependent child or grandchild named as beneficiary. Kayla, as an independent adult daughter, did not qualify for that rollover, so the account's value was very likely already taxable to the estate whether or not anyone physically withdrew it. Handing it over quickly would not create a brand-new bill out of nowhere; it would lock that income inclusion into a year whose numbers were still partly disputed, after the paying institution withheld tax at source, leaving less cash reaching collections than the stated balance suggested. Before agreeing to anything, we asked to see the full collections file and the estate's asset list, because nobody had yet laid out, in dollar terms, what each option would actually cost the estate.

What the review found

The review turned up two things that changed the plan. First, the disputed reassessment itself was not fully resolved. A portion of the amount collections was pursuing related to a deduction claimed in the deceased's final return that had not yet been through an objection. The deduction concerned business expenses claimed against commission income in the final working year, disallowed on the basis that supporting records were incomplete. Paying the full assessed amount quickly, as Erzsebet had proposed, would have meant paying tax on a figure that was still genuinely contested, with no easy way to get it back if the objection succeeded, since refunds on amounts already paid can take considerable time to process even after a successful objection.

Second, and more immediately relevant to Erzsebet's original question, the estate held other assets that could satisfy a meaningful portion of the debt without disturbing an account whose tax position was already fixed by the deemed-disposition rule. The joint bank account and a portion of the investment portfolio were both accessible without forcing a withholding-tax deduction at the point of payment or crystallizing the registered account's value inside the still-disputed year, the way collapsing it under pressure would. Collections agencies pursue what is easiest for them to reach, not what is cheapest for the estate to liquidate, and a registered account with a clear balance at a named institution is often the path of least resistance for a collections officer to freeze or garnish. Nothing in the notice Erzsebet received asked the estate to choose its own order of payment; it simply named the account collections intended to go after first.

We also found that the notice Erzsebet received had overstated what the agency could do without further estate cooperation. A locked-in account has its own rules around access, and an executor is not automatically obliged to authorize a full collapse the moment a demand letter arrives. There was real room to propose an alternative, and doing so before any funds moved mattered, because reversing a completed withdrawal is far harder than redirecting one that has not happened yet.

None of this meant the debt was going away, and it was important that Erzsebet, Kayla, and Megan understood that from the outset. The confirmed portion of the reassessment was real and owed, and no amount of careful sequencing was going to make that figure disappear. The question was never whether the estate would pay something. It was which assets would be used to pay it, in what order, and whether the estate would lose part of that value to withholding tax and a disputed-year income inclusion simply because of the sequence those assets moved in.

What we did

1. Requested the complete collections and reassessment file before agreeing to any transfer, because Erzsebet's proposal had been made based on the demand letter alone, without seeing the full basis for the amount claimed, which years were involved, or which parts of the balance remained open to challenge. Getting the full file first meant planning against real numbers, not the summary figure in a single letter.
2. Separated the confirmed debt from the disputed portion, going line by line through the reassessment to identify that part of the balance still turned on an unresolved objection to a disallowed business expense claim. This meant tracking two figures instead of one lump sum, so the estate would not pay an amount that might later be reduced once the objection was decided, and every later conversation with collections referenced the confirmed number rather than the total on the original notice.
3. Filed the outstanding objection on the disputed reassessment promptly, since a validly filed objection generally puts a statutory hold on collection action for the disputed portion of the debt while it is under review, and getting that hold in place early meant the disputed amount could not be swept up alongside the confirmed balance while the objection worked its way through, and filing it early also meant the eventual reduction in the amount owed was locked in as a live issue rather than something raised too late to matter.
4. Prepared an asset inventory showing accessible non-registered funds, laying out the joint account and portfolio balances with supporting statements so the collections officer had a concrete, documented alternative in front of them, rather than a general objection with nothing to back it up. The inventory flagged which assets could be liquidated without a further tax consequence, so the proposal was grounded in figures collections could verify.
5. Proposed a payment structure using non-registered assets first, offering a specific amount against the confirmed portion of the debt drawn from the accounts that would not trigger withholding tax or lock the disputed year's numbers into place, while flagging the registered account as a last-resort source only if those other, more liquid assets proved insufficient to cover the amount actually owed.
6. Negotiated a short hold on registered account collection while the objection and the alternative payment arrangement were processed, avoiding a forced collapse of the account while the broader file was still being sorted out and the disputed amount was still under review. Securing that hold in writing mattered, since a verbal understanding does not bind the file if it is reassigned to a different officer, and the estate needed something to point to if a fresh demand letter arrived first.
7. Explained the arithmetic to Erzsebet, Kayla, and Megan directly, showing in dollar terms what collapsing the registered account would have cost the estate in withholding tax and a value locked into a disputed year, compared to the plan that used other assets first, so all three understood why the slower path was also the cheaper one, and the family stopped pressing for the fast option once they saw the numbers side by side.
8. Coordinated the final payment and account distribution once the objection was resolved and the confirmed balance settled, ensuring the account was distributed to the beneficiaries under the will rather than drawn down to cover a debt other assets had already satisfied. This included confirming in writing that collections considered the file closed against the registered account, so no fresh demand could reach it later.

The outcome

The estate paid the confirmed portion of the debt using the joint account and a portion of the investment portfolio. The registered retirement account was preserved and eventually distributed to the beneficiaries under the will rather than collapsed to satisfy collections. The objection took several months to resolve and reduced the estate's total liability by a meaningful amount, though not to zero, since a portion of the disallowed expense claim was ultimately upheld against the estate on the basis of incomplete supporting records.

This was not a full win, and it is worth being clear about that. The estate still paid a substantial amount toward the confirmed debt, and the process took considerably longer than the same-day transfer Erzsebet had originally proposed, stretching out over several months rather than closing within weeks. Kayla and Megan both had to accept the wait, and there were more phone calls than any of them wanted. That delay was a genuine cost of doing it properly, not a hidden benefit.

What the estate avoided was locking the registered account's full value into a disputed year and losing a slice of it to withholding tax before the money ever reached collections, plus the risk of paying the full disputed amount before the objection had a chance to work its way through and reduce it. Erzsebet later said the hardest part of the whole process was resisting her own instinct to make the letters stop as fast as possible, an instinct Kayla shared and had to be talked through as well. The instinct was understandable, and in a simpler file it might even have been the right call. In this file, it was the instinct that would have cost the estate the most, and slowing down long enough to see the full picture is what limited the damage.

What you can learn from this