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February 05, 2022

Who's going to get all those RRSP assets?

In the rush to first open that RRSP, you probably signed reams of documents. But, if your circumstances have changed at all, now might be a good time to review just what you signed -- particularly when it comes to your beneficiary.

If you're married or living in a common-law relationship, you're probably better off to name your spouse or partner as the beneficiary. This way, your RRSP assets can be rolled over to his or her plan at your death, allowing you to avoid paying tax until the surviving spouse is faced with his or her own final tax return.

Reassess this in the event of divorce or remarriage, however. There have been cases where an RRSP went to a former spouse after the ex’s death.

Not only would the former spouse inherit, but the estate might be liable for the taxes owed as the transaction would no longer qualify as a tax-free rollover. If no beneficiary is chosen at all, the RRSP typically becomes estate property, and taxes will take a big bite.

And if another person is listed as a beneficiary, except in certain cases such as dependent children, you’ll be in the same situation. If you do leave your RRSP to your kids, there are two tax-saving exceptions to be aware of.

You’ll be able to transfer things tax-free if the child is a minor who is financially dependent on you. In this case, the child will be eligible to buy an annuity to age 18 with your plan assets, spreading the tax accordingly.

The second situation is where an older child or grandchild was financially dependent on you at the time of your death as a result of mental or physical problems.  

Have you ever bothered to review that RRSP paperwork? Any changes? Any recommendations?

By Gordon Powers/MSN Money 



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...