RRSPs & Estates

Questions often asked when our clients are considering their Wills and Estate Plans include: “If I name a beneficiary on my RRSP contract, will this be valid or must I name the person in my Will?” “If I change the beneficiary of my RRSP’s in my Will, do I have to inform my RRSP trustee?”

In Alberta, the Trustee Act allows a RRSP contributor to designate a beneficiary on the RRSP contract. Such designations are specifically excluded from the formal requirements of the Wills Act, meaning that requirements for a particular number of witnesses, such as is required when one signs a Will, is not required when naming a beneficiary on a RRSP contract.

If a person who has a RRSP designates a beneficiary in the contract and later changes the beneficiary in the Will, the Will revokes and replaces the contract designation. A problem may arise when the RRSP trustee does not know that a new beneficiary designation was made in your Will, and so pays out to the person named on the RRSP contract. It is therefore important to notify the RRSP trustee when a change of the beneficiary is made in the Will.

RRSP Funds – Part of the Estate?

Another frequent question is whether RRSP funds form part of the estate assets or whether they go directly to the beneficiary.

If your RRSP was issued by an insurance company, the Insurance Act provides that the funds go directly to the beneficiary and do not form part of the estate assets. Conversely, if the RRSP was issued by a financial institution other than an insurance company, then the funds will form part of the estate. The estate will be responsible for paying the taxes on the plan, notwithstanding that the benefits may be paid directly to a beneficiary named in the plan.

Revenue Canada takes the position that the person who receives the benefit is jointly liable with the estate for the payment of the tax. Unless there is some direction in the Will, the estate will have no claim against the designated beneficiary for the taxes paid out of the estate. Also, the RRSP trustee is not required to withhold part of the RRSP proceeds to meet potential tax liability.