RRIFs At Death
Generally, if a spouse is to be the beneficiary of RRIF assets then the spouse should be specifically named in all RRIF contracts. More specifically, a spouse should be designated as a successor annuitant rather than as a beneficiary of the RRIF*. As a successor annuitant, the surviving spouse will receive the remaining RRIF payments as the new annuitant. This indicates that the spouse is to have immediate ownership of the funds on the death of the planholder. A probated Will should not be necessary because there is a legal document passing the asset outside the estate.
In addition to reducing probate costs, this should help to speed the transfer of funds to the spouse. (Note, however, that not all financial institutions have uniform policies on beneficiary designations and other estate settlement issues.) Regardless of whether the spouse is named in the RRIF contract or is entitled to RRIF assets via the estate, the spouse generally has the option of rolling RRIF assets on a tax-sheltered basis.
Special rules apply if there are dependent children. In all other cases, the entire value will be fully taxable in the final tax return of the deceased.
If non-dependent children or others are named as beneficiaries on RRIF contracts, they receive the full value of the RRIF tax-free but the estate pays the tax on the full value. (If the estate comes up short, the Canadian Revenue Agency (CRA) will claim the taxes from the RRIF beneficiaries.) If non-dependent children or others are left RRIF assets in the Will, the full value will be taxed as income in the final return of the deceased and then they will receive their share of the estate after taxes. It is important to note that leaving assets to one heir via beneficiary designation, and to another heir via the estate, could create a grossly inequitable situation because of the taxes.
Seeking professional tax and legal advice regarding the co-ordination of your Will and your beneficiary designations is essential because there are many factors to be taken into account, including tax and family law considerations.
Take the time to consider the impact your death will have on your retirement assets and your estate. With careful planning you can ensure you leave a lasting legacy for your family.
* Rules differ in Quebec where beneficiary designations are not recognized and assets should be distributed through a Will. So with a RRIF, a spouse should be named as a "successor annuitant" in the Will. Similarly, Yukon residents cannot make RRIF designations.
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