How do you deal with RRSP transfers upon death?

July 1, 2016

When RRSP assets are present in an estate, there are a few steps to follow to assist transferal in the event of inheritance, death or separation. It is always prudent to preplan your estate processes that occur when one or both spouses die.

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A surviving spouse can transfer the full amount of a spouse’s RRSP as a refund of premium by rolling it into his or her own RRSP, if under age 70; or to a RRIF, life annuity or term annuity, if 70 or over. Preferably, name your spouse as the beneficiary under all RRSP plans when you set them up, or make this provision in your will.

If you leave no surviving spouse but there is an adult child or grandchild who is ‘financially dependent’ upon the deceased at the time of death, the full RRSP can be transferred tax-free to the child’s own RRSP or used to buy an annuity or RRIF. Minors, however, must use the funds to purchase an annuity with payments to age 18. (A tax expert should be consulted to determine if an individual is ‘financially dependent’.) In most cases outside of financial dependency, the funds will be taxed in the hands of the deceased on his or her last tax return.

Consider using life insurance Life insurance strategies can offset the large tax liabilities associated with RRSP/RRIF assets that seniors will face, thus increasing inheritances.

Should you and your spouse jointly receive an inheritance, split the future taxation on investment income by investing the two amounts separately. Keep funds invested in a lower income spouse’s investment portfolio, if he or she is the direct and only recipient of an inheritance.

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