What happens to an RRSP at death?

Gena Katz, a chartered accountant and principal with Ernst and Young, has the answer.

Gena Katz 18 January, 2003 | 2:00PM

Dear Expert:

What happens to my RRSPs if I die before they mature? Someone told me that they are not transferable. What happens to my money?

Expert Opinion:

Under Canadian tax law, an individual is deemed to dispose of all his or her property at the time of death at fair market value. In the case of an RRSP (which falls under the definition of property), this deemed disposition results in an income inclusion in the year of death equal to fair market value of the investments held in the plan on the date of death.

However, there are exceptions. Where the RRSP assets are left to a surviving spouse or financially dependent children or grandchildren - because they are named as beneficiaries in the plan, or because the will directs that such distributions should be made to them - the value of the RRSP instead will be taxed in the eligible recipient's hands. If the RRSP is left to a surviving spouse, that spouse may defer the immediate tax by transferring the deceased spouse's RRSP proceeds to his or her own RRSP. A tax deferral may also be available in the case of a minor or infirm child.

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Gena Katz

Gena Katz