Financial Planning, Taxes, Wealth Planning, RRSP

RRSP transfer to spouse on death

Aug 16, 2017

While RRSPs are generally fully taxable on death, it is possible for spouses (including common-law partners) to leave RRSP assets to one another on death in a way that defers taxes. However, leaving RRSP assets to a surviving spouse is not as straightforward as some might think.

Here is an overview of how this tax-deferred transfer might be achieved, using as an example the situation of two Canadian residents: Pat, who recently died, leaving a spouse, Terry.

If the spouse is designated as the beneficiary in the plan document


The position of Canada Revenue Agency (CRA) is that if Terry is the sole beneficiary in the RRSP contract and the full amount of that RRSP is directly transferred to Terry’s RRSP or RRIF (or used to buy an eligible annuity) by December 31st of the year following Pat’s death, then the value of the RRSP would be included in Terry’s tax return for the year of the transfer, not in Pat’s final return. Terry could then claim a corresponding special deduction, so no taxes would be payable.

If the specific criteria of CRA’s position are not met, then Pat’s executors have to include the value of the RRSP in Pat’s final return. However, Pat’s executors could decide to claim a deduction on Pat’s final return up to the RRSP amounts actually paid to Terry. That amount would then be taxable to Terry in the year the payments were made. To reduce the resulting taxes, Terry could make special RRSP/RRIF contributions, provided they are made in the year of a payment from Pat’s RRSP or within the first 60 days of the next calendar year.

If the spouse is not designated as the RRSP beneficiary


If the RRSP is designated to the estate, or if there is no valid beneficiary designation, or if making a designation is not possible (often the case in Quebec), the executors will hold and control the RRSP assets as part of the estate.

Nonetheless, if Terry is a beneficiary under Pat’s will, an opportunity exists to achieve a tax-deferred transfer of Pat’s RRSP:

  1. Pat’s executors must file a joint election with Terry designating an amount of Pat’s RRSP to be taxed on Terry’s return for the year the funds were paid to Pat’s estate, rather than on Pat’s final return.
  2. To get a deduction against the income inclusion stemming from the joint election, Terry could make the special RRSP/RRIF contribution, provided it is made in either the year of the RRSP payment to the estate or the first 60 days of the next calendar year.

Your objectives


RRSP owners who have a spouse should consider whether it matters where the tax liability for the RRSP will fall after their death. For example, if other beneficiaries are to receive some of the residue of Pat’s estate, Pat may want to ensure that the RRSP passes to Terry on a tax-deferred basis.

Since achieving a spousal rollover depends on the surviving spouse and/or executor doing certain things in a timely manner, this should be considered when appointing executors and designating beneficiaries.

When greater certainty for a spousal rollover is desired, an RRSP owner might consider designating the RRSP to his or her estate and include language in his or her will to achieve the desired outcome, such as by making the spouse’s entitlement to the RRSP assets conditional on the spouse jointly electing to minimize taxes in the final return stemming from the RRSP assets.

You should carefully review your situation and specific objectives with your tax and legal advisors to determine the most appropriate planning for your retirement plans, including beneficiary designations and the choice of executors.