How to Transfer Your RRSP to Beneficiaries

Your RRSP is a significant part of your retirement savings, but it’s also an important element of your estate. Understanding how RRSPs are passed on to spouses, children, or other beneficiaries ensures that your hard-earned savings are transferred as smoothly and tax-efficiently as possible.

The rules around RRSP transfers at death can be complex, with different outcomes depending on who inherits the account. Planning ahead is essential to minimize taxes and align the transfer with your legacy goals.

What Happens to Your RRSP When You Pass Away?

When an RRSP holder passes away, the account does not automatically disappear. However, the entire value of the RRSP is typically added to the deceased’s income for tax purposes in the year of death. This can create a large tax liability if not planned carefully.

RRSP Beneficiary Tax Treatment Summary

Beneficiary Type	Tax Treatment at Death	Tax Deferral Possible?	Key Notes
Spouse or Common-Law Partner	Value not taxed in year of death if transferred to spouse’s RRSP or RRIF	Yes	Most common and tax-efficient transfer method; name as designated beneficiary or successor annuitant.
Financially Dependent Minor Child/Grandchild	Not taxed if proceeds used to buy an annuity to age 18	Yes	Must meet CRA dependency rules; limited to minor age period.
Financially Dependent Child/Grandchild with a Disability	Not taxed if transferred to RDSP	Yes	Must meet disability eligibility; preserves long-term tax shelter.
Non-Dependent Beneficiary(e.g., adult child, other relative, friend)	Full value taxed in deceased’s final return	No	Beneficiary receives after-tax amount; can create large tax bill.

Transferring an RRSP to a Spouse: The Tax-Deferred Option

The most straightforward and tax-efficient RRSP transfer occurs when the beneficiary is a surviving spouse or common-law partner. This transfer can happen:

Directly to the spouse’s RRSP or RRIF, deferring taxes until the spouse makes withdrawals.
Without immediate tax consequences, preserving the tax-sheltered status of the investments.

This is why many Optimize clients name their spouse as the “designated beneficiary” or “successor annuitant” on their RRSP. It ensures the account stays intact and tax deferral continues seamlessly.

Passing an RRSP to a Financially Dependent Child or Grandchild

In certain situations, a financially dependent child or grandchild can also receive RRSP assets with tax advantages. This depends on:

The child’s level of dependency (typically due to disability or income limitations).
The use of proceeds to purchase an annuity until age 18 (for minor dependents).

For a child or grandchild who is financially dependent due to a disability, RRSP proceeds may be transferred to their Registered Disability Savings Plan (RDSP), allowing continued tax deferral.

At Optimize, we guide families through these options to ensure transfers align with both tax efficiency and family needs.

What Happens When a Non-Spouse, Non-Dependent Inherits an RRSP?

If the RRSP is left to an adult child, grandchild, or any other non-dependent beneficiary, the full value of the RRSP is taxed in the deceased’s final tax return. The beneficiary receives the after-tax amount, and no further tax deferral is possible.

This can create a significant tax bill if the RRSP balance is large, which is why proactive estate planning is critical.

Naming a non-dependent beneficiary isn’t inherently wrong, but the tax implications must be understood. Optimize helps you weigh these decisions carefully within your broader estate plan.

RRSP Transfers Through the Estate vs. Direct Beneficiaries

RRSPs can pass to beneficiaries in two ways:

By naming a direct beneficiary on the RRSP account, allowing for a simpler and faster transfer.
Through your estate (via your will), which can involve probate fees and delays.

Note: Naming a direct beneficiary is often the preferred route to avoid probate, but it’s essential to align this with your overall estate plan. At Optimize, we ensure your RRSP beneficiary designations and your will are coordinated, preventing unintended consequences.

How Optimize Helps You Plan RRSP Transfers to Beneficiaries

Transferring your RRSP is more than an administrative task—it’s a strategic component of your estate plan. Optimize supports you by:

Reviewing and updating RRSP beneficiary designations to ensure tax-efficient transfers.
Advising on spousal rollovers and successor annuitant strategies, preserving tax deferral.
Guiding families on dependent child and disability-related transfers, ensuring benefits are maximized.
Coordinating RRSP estate planning with your overall legacy goals, balancing taxes, timing, and family needs.
Proactively revisiting your plan as your family and financial situation evolves.

With Optimize, passing on your RRSP becomes a thoughtful, efficient process that protects your legacy and minimizes unnecessary tax burdens.