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<< back to all ArticlesRegistered Investments and Death – Considerations for Your Estate Plan
Disclaimer: Reynolds Mirth Richards & Farmer LLP does not practice tax law and we cannot provide tax law-related advice. We strongly recommend you speak with your accountant or another qualified tax specialist for tax-specific questions related to your Estate. We are happy to provide referrals.
Introduction
Registered investments (e.g., RRSPs, TFSAs, etc.) can offer significant tax advantages during life but may create unintended consequences on death if not considered in your estate plan.
This article provides a general overview of the most common types of registered investments and how they are treated on death in Alberta.
What is a Registered Investment?
A registered investment is an investment vehicle that is registered with the Canada Revenue Agency (CRA). Registered investments offer tax benefits, so long as they comply with all relevant legislation.
| Common Types of Registered Investment | Use / Purpose |
| Registered Retirement Savings Plans (RRSPs) | Retirement savings |
| Registered Retirement Income Funds (RRIFs) | Retirement income-paying form of an RRSP |
| Tax-Free Savings Accounts (TFSAs) | General savings |
| Registered Education Savings Plans (RESPs) | Post-secondary education savings |
| First Home Savings Accounts (FHSAs) | First home purchase savings |
| Registered Disability Savings Plans (RDSPs) | Financial security for individuals with disabilities |
Designated Beneficiaries
A beneficiary designation on a registered investment names a specific person or organization (like a charity) to receive this asset upon your death. Beneficiary designations can be made when you open the registered account or in your Will, if the Will complies with applicable legislation.
If you change your beneficiary designation, the last-in-time designation will govern, but it is always best practices to update everything (e.g., both the bank paperwork and your Will) so it matches.
If you have named a designated beneficiary, then when you die, the funds in the registered investment go directly to the designated beneficiary, ‘passing outside’ of your estate. This means the funds are not governed by your Will.
If you have not named a designated beneficiary, then when you die, the funds form part of the “residue” of your estate (i.e., everything left over after your personal representative or executor pays all debts, taxes, and expenses, and distributes any specific gifts mentioned in your Will).
Registered Investments and Treatment on Death (In General Terms)
| Common Types of Registered Investment | Treatment on Death* *For detailed information on tax treatment after death, please consult your accountant or another qualified tax specialist |
| Registered Retirement Savings Plans (RRSPs) | Taxable UNLESS it can be rolled over on a tax-deferred basis (e.g., to a spouse or common law partner) |
| Registered Retirement Income Funds (RRIFs) | Taxable UNLESS it can be rolled over on a tax-deferred basis (e.g., to a spouse or common law partner) |
| Tax-Free Savings Accounts (TFSAs) | Designated successor holder (can only be the deceased’s spouse or common law partner) steps into the deceased’s TFSA and account continues uninterrupted OR designated beneficiary (if not deceased’s spouse or common law partner) receives TFSA value tax-free as of the date of death and any growth after death may be taxable |
| Registered Education Savings Plans (RESPs) | Depends on the RESP plan terms, subscriber structure, and deceased’s Will |
| First Home Savings Accounts (FHSAs) | Depends on who (if anyone) is named as a successor holder (can only be the deceased’s spouse or common law partner) or as a beneficiary (not deceased’s spouse or common law partner) |
| Registered Disability Savings Plans (RDSPs) | Depends on who dies (the beneficiary of the RDSP vs. the holder of the RDSP) |
Unintended Consequences on Death
Registered investments can create unintended consequences on death if not considered in your estate plan. In blended families or second marriages, this risk increases significantly.
For example, what if your designated beneficiary dies before you? What if your designated beneficiary is still a minor when you die? What if your designated beneficiaries and your Will do not align – is this your intention? What if there are missed tax rollover opportunities? Or, if no rollover applies and there are taxes owing, the tax liability remains with your estate, which might create a mismatch and inequitable treatment of beneficiaries – is this your intention?
Scenario 1: Jill prepares a Will. Jill’s Will directs that her estate is to be split equally between her three adult children (Ann, Bob, and Caroline), and if one of them dies before Jill, their share is to go to his or her children. Jill’s RRSP lists Ann, Bob, and Caroline as her designated beneficiaries, but goes no further. Ann dies before Jill, so Jill’s RRSP is divided between Bob and Caroline, but the tax bill for the RRSP goes to Jill’s estate, which is shared equally between Bob, Caroline, and Ann’s children. In other words, Ann’s children foot 1/3 of the RRSP’s tax bill without receiving any benefit from the RRSP itself. Was this Jill’s intention?
Scenario 2: Jill prepares a Will. Jill’s Will directs that her estate is to go to her daughter, Ann, and Jill’s RRSP lists her son, Bob, as the designated beneficiary of Jill’s RRSP. At the time of drafting her Will, Jill had approximately $500,000 in her RRSP and $500,000 making up all of her other assets forming her estate. Jill believes Ann and Bob will inherit roughly equal shares. However, when Jill dies, her estate is responsible for debts, taxes, and other expenses. Ann therefore receives less than Bob because the estate first has to pay the tax bill owing on the RRSP (no rollover applied in this scenario). Was this Jill’s intention?
Key Takeaways
Registered investments can offer significant tax advantages during life and can be powerful estate‑planning tools, but they do not operate in isolation.
Regularly reviewing your registered investments, beneficiary designations, Will, and overall estate plan with your lawyer and accountant or tax specialist is essential to ensure your assets pass efficiently, tax liabilities are anticipated, and your intentions are carried out.
If you or someone you know has any questions or needs to begin their estate planning, please reach out to our Wills and Estates Team and we would be happy to assist.
This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.
