Choosing the beneficiary for your RRSP or RRIF
Tax planning is often behind the choice of a beneficiary for a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF). If you name a “qualified beneficiary,” they can receive RRSP or RRIF assets tax-deferred. A qualified beneficiary is your spouse or a financially dependent child or grandchild. If you name any other beneficiary, your RRSP or RRIF assets would be taxed as income on your final return.
Designating your spouse. When you designate your spouse as the beneficiary of your RRSP, the plan will be wound up upon your passing, and assets can roll over tax-deferred to your spouse’s RRSP.
With a RRIF, you have a second option. You can name your spouse as a successor annuitant, in which case your spouse simply takes over the existing RRIF. It’s a smoother transfer than that of a beneficiary designation, with less planning and reporting required. But, naming your spouse as the beneficiary of your RRIF does offer flexibility. For example, there may be tax-planning reasons to leave some RRIF assets in the estate, with the balance going to the spouse’s RRIF or RRSP.
Naming a non-qualified individual. If you name a non-dependent child, grandchild or another person as the beneficiary of your RRSP or RRIF, they’ll receive the assets tax-free. But keep in mind that your estate pays the tax, so you must plan for that tax liability.
Leaving a charitable gift. If you plan on leaving a charitable gift, naming a charity as the beneficiary of your RRSP or RRIF offers significant tax benefits. Your estate would receive a tax credit for the donation equal to the amount of the RRSP or RRIF assets. Typically, the tax credit offsets the tax payable on plan assets – so the estate pays no tax on the RRSP or RRIF proceeds.
Naming your estate. Some financial commitments or tax situations may call for naming the estate as the RRSP or RRIF beneficiary. For example, you may need to help fund a trust or cover capital gains tax on a vacation property.
Note that Quebec residents must use their Will, not an RRSP or RRIF form, to indicate how they want registered plan assets distributed. However a beneficiary designation can be done directly on the RRSP or RRIF form for segregated funds.
