What Happens to Your RRSP and RRIF When You Die in BC?

For many British Columbians, an RRSP or RRIF is the largest asset they own apart from their home. It is also the asset most likely to create an unexpected tax bill at death.

Here is how registered accounts are treated after death, who can inherit them tax-deferred, and the planning mistakes we see most often.

How an RRSP or RRIF Is Taxed at Death

You’ve never paid tax on the money inside your RRSP or RRIF, so the CRA collects it at the end. When you die, the full fair market value of the account is generally added to your final tax return as income, unless it passes to a qualifying beneficiary.

Because that amount lands in a single tax year, it can push the final return into the highest bracket. In BC, the top combined federal and provincial rate exceeds 50%. A $400,000 RRIF can lose a very large share of its value to tax if there is no plan.

Who Can Receive It Tax-Deferred?

• Spouse or common-law partner: The account can usually roll over into their own RRSP or RRIF with no tax at that point. For a RRIF, naming your spouse as successor annuitant lets payments continue without interruption.
• Financially dependent child or grandchild: Special rules may allow full or partial deferral, depending on the circumstances, including whether the child has a physical or mental infirmity.
• Everyone else: Adult children, siblings, friends and other beneficiaries receive the money, but the tax is still reported on your final return.

Naming Your Estate vs. Naming a Person

Many people name “my estate” as the beneficiary without realizing the consequences.

• Named beneficiary: The account passes directly to that person, outside the will. In BC, it generally isn’t subject to probate fees.
• Estate as beneficiary: The funds become part of the estate, so BC probate fees apply and creditors may have access.

For more on how probate works, read Understanding the Probate Process. 

A Problem Many Families Don’t See Coming

When an RRSP passes directly to one beneficiary, the tax bill still belongs to the estate. If the estate has little else in it, the executor may struggle to pay the CRA, while the person who received the RRSP walks away with the full amount. In families with multiple children, that can create real unfairness and conflict.

This is where your will matters. It can state clearly how tax on registered assets is to be shared and paid. A clear clause now can save your executor and your family a dispute later. See Key Elements to Include in a Will.

RRSP/RRIF vs. TFSA at Death

A TFSA is treated very differently. Its value at death is generally not taxed, and a spouse can often be named successor holder to keep the account intact. When deciding which account to draw down first, and which to leave to your family, this difference matters.

Five Practical Ways to Plan Ahead

1. Check your beneficiary designations on every RRSP, RRIF, TFSA and insurance policy. They override your will.
2. Use the spousal rollover to defer tax until the second death.
3. Consider drawing down gradually during your lifetime, when you may be in a lower bracket than your estate will be. Your accountant can model this.
4. Use life insurance to cover the expected tax bill so that registered funds don’t have to be liquidated.
5. Name a charity as beneficiary of part of the account. The donation credit can offset a large portion of the tax on the final return.

Review all of this after any major life event such as marriage, separation, remarriage or the birth of a child. Outdated designations are among the most common estate planning errors. See The Importance of Regularly Updating and Reviewing Your Will.

Where a Notary Fits In

As a BC notary, we prepare wills that coordinate with your registered accounts, and we can help you add the clauses described above so your intentions are clear. Beneficiary designations are usually completed with your financial institution, so we make sure your will and your designations don’t contradict each other. We don’t provide tax or accounting advice, so for exact numbers and strategy, your accountant or tax advisor should be part of the conversation.

For the bigger picture, read Addressing Potential Tax Implications in Estate Planning, 5 Proven Strategies to Minimize Estate Taxes in British Columbia and Trusts vs. Wills: Which Is the Right Choice for You?.
To get started, explore our Wills and Estate Planning and Personal Planning services.

Make Sure Your RRSP Goes Where You Intend

Not sure your will and beneficiary designations work together? Book a will and estate planning consultation with Jamie Taleb Notary Public in North Vancouver, or call (604) 971-1985. Saturday and same-day appointments are available.

General information only, not legal or tax advice. Rules and rates change, so confirm with a qualified professional.

FAQ

Is my RRSP taxed when I die in Canada?
Generally yes. The full value is added to your final return as income, unless it rolls over to a surviving spouse or common-law partner, or to a qualifying financially dependent child or grandchild.

What happens to my RRIF if my spouse is the successor annuitant?
Payments continue to your spouse without the account being collapsed, so no tax is triggered on your final return for the RRIF’s value at that point.

 Do my children pay tax on an RRSP they inherit?
The tax is generally reported on your final return and paid by your estate, not by your children. That is why your will should address who bears the tax.

Do RRSPs go through probate in BC?
If you name a beneficiary other than your estate, the account generally passes outside the will and avoids probate fees. If the estate is the beneficiary, probate fees apply.

Is a TFSA taxed at death?
Generally not. Its value at death is typically not taxed, and a spouse can often be named successor holder.

Can a notary give tax advice about my RRSP?
No. A notary prepares your will and legal documents. Tax planning should come from an accountant or tax advisor, and we’re happy to work alongside them.