Naming beneficiaries for your RRSP and RRIF investments is not an easy process. There are many different options, each with their own benefits and tax implications. Beneficiary designations for these accounts are an important part of the estate planning process. Possible beneficiaries for your RRSP and RRIFs include your current spouse or your children/grandchildren. In this article, we will go over each choice in detail and outline their individual benefits and tax implications.
Naming your spouse as beneficiary
Naming your surviving spouse as the sole beneficiary to your RRSP gives them the option to roll over the investment as long as it is all transferred into an RRSP/RRIF/Annuity in their name. This option is available everywhere but Quebec and as long as it’s done before the end of the year following the year of death.
If the spouse is not the sole beneficiary, it’s best to designate the estate as the RRSP beneficiary and the will should then specify that the spouse must consent to receive the funds as a refund of premium or just the after-tax value of the RRSP. Without this specification, the spouse could opt to take the value of the RRSP in cash, which will leave the estate to pay the taxes.
For RRIF accounts, similar rollover options are available, with some difference. The spouse has the option of rolling the RRIF funds into a registered plan in their name with the minimum payment being taxable to the estate.
If the spouse is designated as the successor to receive annuities, they can be named on the policy in place of the deceased and continue receiving RRIF installments.
Naming your children as beneficiaries
You can defer taxes if your registered plans are transferred to a term-to-18 annuity of a dependent minor child. Any withdrawals will be taxable to the child. If your RRSP is highly valued, a testamentary trust should be considered instead of a transfer.
Transferring your plan to a financially dependent disabled child is also possible. You can transfer to their RRSP, RRIF, RDSP or term annuity. Registered Disability Savings Plans (RDSPs) are subject to a $200,000 limit and aren’t eligible for the Canada Disability Savings Grant. RRIF withdrawals are taxable to the beneficiary.
There are many things to consider when planning your estate, each with their own financial pros and cons. For help with your estate planning, contact The Beacon Group of Assante Financial Management, Ltd. Our financial advisors and estate planning specialists are ready to answer your questions and help you make the right choices for your unique situation.