Charlie will soon celebrate his 71st birthday. It will mark a
significant milestone for him and his family. While party plans
ensue, Charlie wishes to ensure that the conversion of his RRSP to
his RRIF best takes care of his wife Betty upon his death.
As you may be aware, an individual is required to convert his or
her Registered Retirement Saving Plans (RRSP) into a Registered
Retirement Income Fund (RRIF) or an annuity by the end of the year
when he or she turns 71. In Charlie's case, Betty was the
beneficiary of his RRSP but does not automatically continue to be
the beneficiary of the RRIF. At time of conversion, Charlie would
have to re-designate Betty as a beneficiary of his RRIF. Instead,
and only in the case of spouses or common-law partners, Charlie has
the option to name Betty as a successor annuitant instead.
Generally, when an annuitant of a RRIF dies, he is deemed to
have received an amount equal to the value of the investments held
in the RRIF, immediately before his death. This amount and other
annuity payments received from the RRIF are included in the final
return of the deceased. The amount of tax that would otherwise
result can be deferred if the RRIF contract or deceased's will
names the surviving spouse (or common-law partner) as either a
beneficiary of the RRIF or a successor annuitant. When a surviving
spouse is named as a beneficiary of the RRIF, a lump sum amount
will transfer to the RRIF or RRSP of the surviving spouse. However,
if the surviving spouse is named as the successor annuitant, the
RRIF account of the deceased annuitant continues under the
ownership of the surviving spouse. The difference between the two
may seem subtle, but the repercussions can be significant.
Naming the surviving spouse as a successor annuitant instead of
a beneficiary of the RRIF provides the same tax-deferred rollover
to the annuitant. It also results in the following additional
Timing of collapse
The surviving spouse directly takes over the deceased's
RRIF and continues to receive the RRIF payments in place of the
deceased. If the surviving spouse is named as simply a beneficiary,
the RRIF will collapse, resulting in disposal of all of the
investments held in the RRIF. There may be disadvantages in selling
the investments because of market conditions and associated
disposition costs that would occur.
Ease in administration
By naming the surviving spouse as a successor annuitant, the
annuitant's RRIF account can be transferred to the surviving
spouse by simply changing the name on the existing plan or
transferring assets-in-kind to the spouse's RRIF or RRSP. No
additional paperwork is required, and there is no need to execute a
brand new contract.
In addition, the surviving spouse does not have to deal with
extra reporting slips (T4-RIF). The T4-RIF identifies the amount
paid from the deceased's RRIF and the amount eligible to be
transferred to the surviving spouse's plan.
The surviving spouse may continue to receive payments based on
the original terms of the deceased's RRIF. However, if the
spouse was named as a beneficiary, the minimum payments must be
recalculated and adjusted based on the age of the surviving
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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As many of our readers know, the Canadian Income Tax Act (the "Act") provides for an unlimited exemption from the imposition of Canadian income tax on the gains resulting from a disposition of a "principal residence".