Do you want your spouse or common-law partner to inherit your
RRSP, RRIF or TFSA?
How to make it happen
September 9, 2020
You can pass your RRSP, RRIF or
TFSA to your spouse or common-law partner (CLP) upon your death by designating
them as your beneficiary or by appointing a successor annuitant (RRIF) or
successor holder (TFSA) on the contract.
It is important to review the designations you’ve made in the event your
marriage or common-law partnership dissolves, if you do not want your former
spouse/CLP to receive the proceeds. Consider completing a new
designation/appointment form in this situation, as well as in the event of the
death of your spouse/CLP, or a future marriage or common-law partnership.
Following are some things to keep in mind when completing a
designation/appointment, some options available to the spouse/CLP, and an
overview of tax implications. If your registered plans are trusteed by Concentra
Trust, we have made pre-recorded webinars available providing comprehensive
information, including details on completing the proper form for each situation.
Designated Beneficiary on an RRSP
The annuitant may designate their spouse/CLP as beneficiary on an RRSP to
receive the funds upon death of the annuitant. Unlike with a RRIF, there is no
option to appoint a spouse/CLP as successor annuitant under an RRSP.
The spouse/CLP may receive the balance of the RRSP in cash or transfer all or
a portion of the funds to an RRSP, RRIF, annuity, Pooled Registered Pension Plan
(PRPP) or Saskatchewan Pension Plan (SPP). Where the spouse/CLP is the sole
beneficiary and transfers all of the funds to an eligible plan, there are no tax
consequences to the deceased or to the spouse/CLP.
If the annuitant had designated as beneficiary a spouse/CLP who is no longer
the annuitant’s spouse/CLP at the time of death, they would receive the funds in
cash. They would not be permitted to transfer the funds to an RRSP, RRIF,
annuity, PRPP or SPP. The value of the RRSP at date of death would be taxable to
the deceased; any income earned after death would be taxable to the spouse/CLP.
Successor Annuitant vs. Designated Beneficiary on a RRIF
Do you know the difference between appointing a spouse/CLP as successor
annuitant on a RRIF vs. simply designating them as a beneficiary?
Appointing the spouse/CLP as successor annuitant is the most
straightforward way of passing a RRIF to a spouse/CLP upon death and avoiding
tax implications to both the deceased annuitant and their spouse/CLP. The RRIF
contract continues intact in the name of the surviving spouse/CLP, subject to
the same terms and conditions as before the original annuitant’s death. Once the
contract has been changed into the spouse/CLP’s name, payments from the RRIF
will continue to the spouse/CLP, or the spouse/CLP may choose to transfer the
funds to another RRIF or RRSP in their own name.
If an annuitant designates their spouse/CLP as beneficiary, not
successor annuitant, the spouse/CLP may receive the balance of the RRIF in cash
or may transfer all or part to an RRSP, RRIF, annuity, PRPP or SPP. Where the
spouse/CLP is the sole beneficiary and they transfer all of the funds to an
eligible plan, there are no tax consequences to the deceased or to the
Distribution will differ if the individual appointed as successor annuitant
is no longer the annuitant’s spouse/CLP at the time of death, as they would not
be eligible to become the successor annuitant and would have no entitlement to
the funds. The funds would instead be payable to the alternate beneficiaries
designated or, if none, to the deceased’s estate. However, if that individual
was the designated beneficiary at the time of death, they would still be
eligible to receive the funds as cash. Either situation would result in the
value of the RRIF contract at date of death being taxable to the deceased.
Successor Holder vs. Designated Beneficiary on a TFSA
Similar to RRIF, there is a difference between appointing a spouse/CLP as
successor holder vs. designating them as a beneficiary. As successor
holder the spouse/CLP assumes ownership of the TFSA on death and the
tax-sheltered status of those funds is maintained. The TFSA contract continues
in the name of the surviving spouse/CLP, subject to the same terms and
conditions as before the original holder’s death. The amounts held in the TFSA
will not affect the contribution room of the surviving spouse.
When a holder designates their spouse/CLP as beneficiary, not
successor holder, the balance of the TFSA will be paid to the spouse/CLP. There
are no tax implications to the holder; any income earned from date of death to
date of payout is taxable to the spouse/CLP. Where eligible, the spouse/CLP is
permitted to contribute amounts, not exceeding the value of the deceased
holder’s TFSA at date of death, to their own TFSA and designate the contribution
as an exempt contribution. This allows the spouse/CLP to ensure the tax-free
status of the funds without affecting their own contribution room.
If the individual appointed successor holder is no longer the annuitant’s
spouse/CLP at the time of death, they would not be eligible to become the
successor holder and would have no entitlement to the funds. The funds would
instead be payable to the alternate beneficiaries designated or, if none, to the
deceased’s estate. If that individual was the designated beneficiary at the time
of death, they would still be eligible to receive the funds; however, would not
be eligible to make an exempt contribution.
How Concentra can help
If you offer RRSPs, RRIFs or TFSAs, our registered plans specialists can answer
your questions about designations of beneficiary.
For more information, contact:
1.800.788.6311 | email@example.com
Concentra Trust, a national trust company, has been serving clients,
corporations and communities for more than 65 years with tailored estate and
trust solutions designed to preserve and transition wealth to future
generations. We are well versed in navigating the intricacies of estate planning
and administration and our experts have the skill to support all aspects of the
process. Given our passion for trust governance, our unbiased advice and
guidance, and our inclusive leadership culture and co-operative values, we
provide exceptional client service.