Your RRSP and TFSA are among your most significant financial assets, and what happens to them on your death matters enormously — both for your estate's tax position and for how quickly and efficiently those assets can reach the people you want to have them. Understanding the rules for each account type, and designating beneficiaries correctly, is one of the highest-impact things you can do in estate planning.
Your RRSP (Registered Retirement Savings Plan) has never been taxed. Every dollar in your RRSP represents deferred income — the government's share is still owing. When you die, that deferred tax comes due. The full fair market value of your RRSP is included as income on your final tax return (the "terminal return"), taxed at your marginal rate in the year of death.
For a substantial RRSP — say, $600,000 — with no surviving spouse and assuming a combined marginal rate of 50% in a high-tax province, the tax bill could be approximately $300,000. This can be the largest tax event in the estate, and it must be paid from estate assets before distribution to beneficiaries.
The most important RRSP estate planning strategy is naming your spouse or common-law partner as beneficiary. When your spouse is the designated beneficiary, your RRSP rolls over to their RRSP (or RRIF, or PRPP) tax-free. No income is included on your terminal return for the RRSP transfer. The tax is deferred until your spouse eventually withdraws the funds or dies.
This is called the "spousal rollover" and it applies to legally married spouses and common-law partners who meet the Income Tax Act definition (generally, 12+ months of continuous cohabitation, or a child together).
If you have no surviving spouse, or your RRSP is payable to the estate, the full value collapses into income on your terminal return. The estate must pay the tax. The beneficiaries — adult children, other relatives, or whoever you have designated — receive the RRSP proceeds, but the estate (which may also include your home and other assets) has a significant tax bill.
This creates a potential inequity: the RRSP beneficiary receives proceeds directly while other estate assets fund the tax bill, reducing what other beneficiaries receive. Estate planning should account for this allocation.
A tax-free rollover is also available (in limited circumstances) to:
"Financially dependent" has a specific CRA meaning — the child must have been dependent on you for financial support at the time of your death, typically meaning their income was below the basic personal amount.
The rules for a Registered Retirement Income Fund (RRIF) are the same as for an RRSP. The full fair market value of your RRIF is included as income in the year of death, unless it rolls over to a surviving spouse or qualified beneficiary. One difference: income that accrues after the date of death (to the time the RRIF is actually paid out) is taxed in the beneficiary's hands, not the estate's.
The TFSA (Tax-Free Savings Account) has entirely different rules at death. All money inside your TFSA is tax-free — there is no deferred tax to pay, no terminal inclusion of the balance as income. The question is simply who receives the funds and whether the tax-free status is preserved.
If you name your spouse or common-law partner as "successor holder" (not just "beneficiary"), your TFSA automatically becomes their TFSA on your death. The balance transfers intact. Crucially, this does not use any of the surviving spouse's own TFSA contribution room — the successor holder provision is over and above their regular contribution limit.
If you name a non-spouse (child, sibling, friend) as beneficiary, they receive the TFSA balance as of the date of death completely tax-free. Any income earned in the TFSA after the date of death (up to the date the account is paid out) is taxable to the beneficiary. The TFSA account itself is then closed.
If you do not name a beneficiary, the TFSA is paid to your estate. The executor distributes the proceeds according to your will. The amount up to the date of death remains tax-free, but it goes through probate (and is subject to estate administration tax) and is not immediately available to the beneficiaries.
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