Death and your RRSP

Should you die while you still own your RRSP, its entire value must be included in your income in the year of your death unless your spouse or common-law partner or your financially dependent child or grandchild is entitled to the funds. If you designate your spouse or common-law partner or financially dependent child or grandchild as beneficiary of your RRSP, the proceeds from the plan will be taxable in your beneficiary’s hands in the year they’re received, unless they are transferred into his or her own tax-deferred plan.

If none of the above is designated as the beneficiary of your RRSP, its value may still be taxable in his or her hands on your death, provided he or she is a beneficiary of your estate. This approach may provide more flexibility, but more paperwork will be involved.

In addition, proceeds in your RRSP may also be able to be rolled over to an RDSP for the benefit of your financially dependent infirm child or grandchild (see topic 111).

Other rules apply if you die after your plan has matured and you were receiving annuity payments from your RRSP or RRIF.

Tax tip: For a taxpayer who dies in 2016, the executor or legal representative can make a spousal RRSP contribution on behalf of the deceased until March 1, 2017 (see topic 56), provided the surviving spouse otherwise satisfies the age requirements.

As noted above, unless a tax-deferred transfer is available, the fair market value (FMV) of investments held in an RRSP or RRIF must be included in the income of the deceased for the year of death. However, what happens if the value of those investments declines from the date of death to the time of final distribution to the beneficiaries? The post-death decrease may be able to be carried back and deducted against any RRSP/RRIF income inclusion on the deceased’s final tax return.

Two conditions must generally be met for this deduction to be available:

  1. The RRSP/RRIF must be wound up by the end of the year following the year of death.
  2. The RRSP/RRIF must have held no investments other than qualifying investments during the post-death period.

Example: Your widowed mother dies in June 2015, at which time the FMV of the assets in her RRIF was $100,000. In March 2016, her estate distributes $80,000 to you (her sole beneficiary) and the RRIF is wound up. Although $100,000 is reported as income on your mother’s final T1 income tax return, a $20,000 deduction can be claimed to offset that income.