OSSTF District 11- Thames Valley
Ontario Secondary School Teachers' Federation

680 Industrial Road, London, Ontario, N5V 1V1
Phone: (519) 659-6588; Fax: (519) 659-2421; Email: osstf11@execulink.com

Naming Beneficiaries on RRSP's/RRIF's

In preparing their estate plans, most individuals list as one of their top priorities tax minimization or elimination. For most individuals, their registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) one of their most significant assets, second to their home. It provides liquidityto the estate since most funds are invested in mutual funds or stocks and bonds which can generally be liquidated within days.

But unlike most assets, you have the flexibility with an RRSP or RRIF to name a specific beneficiary to receive the assets or proceeds of the plan. This allows you to avoid probate--the "tax" assessed by the provincial government for all the assets, which are distributed by means of the deceased's will. In Ontario, probate for assets transferred through a will is 1.5% of the fair market value of the asset at the time of death. When you appoint an individual or individuals in the beneficiary section of your RRSP/RRIF, the funds will be paid to them directly and will not be distributed through your estate or will, and therefore will not attract probate tax. Please note that this does NOT avoid the tax owed on the disposition of funds; your estate will ultimately be responsible  for paying the tax n your final estate tax return which will include the full amount of your RRSP/RRIF accounts.

Generally, spouses will appoint one another as the beneficiary of their registered plans and this strategy not only avoids probate, but also defers the taxation of funds until the death of the second spouse. If you choose to name any individual other than your spouse or common-law partner, the tax will not be deferred, but probate would be avoided. For example, an older client may wish to direct the proceeds of their RRIF to their grown children in equal shares. If you choose to name your estate as the beneficiary, the funds will flow through your will and be distributed in accordance with the guidelines of our will. Although this latter strategy will attract probate "taxes", there may be more compelling reasons to have the funds directed by your will. One such example would be where a single parent with young children would want the funds to be held in trust where the assets are distributed in accordance with specific income and capital distributions for the benefit of the children beyond their age 18. Your will should also provide direction to the executors/trustees to employ tax efficient strategies, such as rolling over the proceeds to a term certain annuity payable to a minor child until the age 18. Also, if your will includes the creation of a spousal trust upon your death , you may wish to have the proceeds of your registered plans directed to the trust.

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