Article
Designate Your RRSP Beneficiaries Carefully
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During the Registered Retirement Savings Plan rush that occurs every February, thousands of buyers give little thought to the question on the application form that asks them to designate the beneficiary of the Plan upon their death. Designating a beneficiary seems like a simple proposition. Unfortunately, all too often not enough thought is given to this very important decision.
The first point to understand is that under current rules for RRSPs and Registered Retirement Income Funds, there are two types of beneficiaries. The first type qualifies for tax-free rollovers of the inherited amounts into their own plans. Consequently, when the RRSP or RRIF holder dies, the full plan can be transferred to his spouse's RRSP or RRIF completely tax free. If the deceased does not have a spouse, the money can be rolled into a plan for an infirm child or grandchild who was financially dependent on the departed taxpayer. Alternatively, the funds can be used to purchase an annuity to support a healthy dependent child or grandchild until he reaches the age of eighteen.
The second type of beneficiary covers everyone else. Since there is no provision for a tax-free rollover, the institution holding the funds for the estate will treat the distribution as a withdrawal from the plan and issue a T4A tax slip to the estate – not the designated beneficiary!
Article ©1998 The Quarterly Dividend
Reprinted with permission
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