Naming a beneficiary on your RRIF account allows you to avoid probate fees as your RRIF account upon death will not be part of your estate. If you have a RRIF, it’s important to make sure that your account has a beneficiary that you can trust and are comfortable with. The beneficiary could be your spouse, children, charity and so on.
Deemed Disposition of RRIF Account Upon Death
At death, the value of the Registered Retirement Income Fund is included in the income of the deceased as they’re deemed to have received the value of the RRIF, immediately before death. However, keep in mind that income tax may be deferred if the named beneficiary on the RRIF is:
- Spouse
- Dependent Child Under 18
- Dependent Child who is mentally or physically disabled of any age
Naming Spouse as a Beneficiary
You have the option to name your spouse a successor annuitant or a beneficiary. It’s important to note the differences between the two.
- Spouse is the successor annuitant
When you name your spouse as an successor annuitant, upon your death, the spouse would take ownership of the account and the RRIF payments would continue. Investments would not be sold and you’d keep the same portfolio as is. - Spouse as a Beneficiary
When you name your spouse as a beneficiary, the investments in the RRIF will be sold and collapsed. Your wife can choose to transfer the funds in the account into her RRSP or a RRIF.
Advantages of Naming a Successor Annuitant Instead of Beneficiary Naming the spouse as a successor annuitant has it’s benefits such as you have more control over
- Have More Control of Market Timing
- When you name your spouse as a successor annuitant, the spouse would take over the RRIF as is but if they were to be named as a beneficiary, the investment would be sold and charges may be incurred. The selling of investments could be unwarranted in times of strong market growth.
- Save on Administrative Costs
- As a successor annuitant, the investments would stay as is but being named as a beneficiary, the deceased account holder could be charged administrative costs for selling the investments. In addition, no additional paperwork is needed to transfer the RRIF to the spouse as a successor annuitant.
- Level Payments
- Being named as a successor annuitant, the RRIF payments would continue based on the terms of the deceased’s RRIF. If the spouse was named as a beneficiary, minimum payments may have to be readjusted.
Naming a Dependent Child as a Beneficiary
If you’ve named a dependent child as a beneficiary, there are tax deferral opportunities that one could embrace.
- Child As Beneficiary
- If a child under 18 is named as a beneficiary, you have the option to purchase a term annuity up to age 18. In addition, you may also transfer it tax free to their RRSP.
- Child with Mental or Physical Disability As Beneficiary
- You have the option to roll it over to a Registered Disability Savings Plan but keep in mind that it cannot exceed your available contribution room or the $200,000 lifetime maximum limit.
Naming a Charity as a Beneficiary
If you’re looking to give back to the community upon death, you can name your favorite charity as a beneficiary. The funds in your RRIF account upon death will be donated to the charity and your estate would receive a charitable donation tax credit of up to 100% of the value on date of death. This tax credit helps offset the tax burden on the estate. In addition, there would be no probate fees as it does not go through the estate.
