RRSP Beneficiary After Death: What Happens to a Registered Retirement Savings Plan
RRSP Beneficiary After Death: What Happens to a Registered Retirement Savings Plan
An RRSP with a named beneficiary is one of the most administratively clean assets in an estate — it transfers directly to the named person without going through probate and without requiring any involvement from the Probate Court of New Brunswick. But the tax treatment is far less clean. The executor who understands the rules avoids one of the most expensive surprises in estate administration.
Here is exactly what happens to an RRSP when the account holder dies.
How RRSP Beneficiary Designation Works
When someone opens an RRSP, they typically name a beneficiary directly with the financial institution. That designation sits on file at the bank or investment firm, separate from the will. When the account holder dies, the institution checks its records, confirms the beneficiary, and pays the funds out directly.
This means:
- The RRSP does not form part of the estate for distribution purposes
- The RRSP does not count toward the gross value of the estate for calculating New Brunswick probate tax
- No court order or Letters Probate is required to release the funds
- The beneficiary receives the money directly from the financial institution
For New Brunswick executors assessing whether the estate qualifies for the small estate threshold (currently $25,000 as of the 2026 legislative amendments), registered accounts with named beneficiaries are excluded from the calculation. This is a significant point: a deceased person could have $200,000 in RRSPs and still have an estate that qualifies for simplified administration under the $25,000 threshold, as long as the remaining solely-owned assets fall under that amount.
The Critical Exception: No Named Beneficiary or Estate as Beneficiary
If the RRSP has no named beneficiary, or if the estate is named as the beneficiary, the funds flow into the estate. At that point:
- The RRSP value is included in calculating New Brunswick probate tax
- The executor must wait for Letters Probate before the financial institution will release funds
- The funds are distributed according to the will or, if there is no will, according to the Devolution of Estates Act
This is a common and costly situation. It arises frequently when a named beneficiary has predeceased the account holder and the designation was never updated, or when an older RRSP was set up before beneficiary designations were routinely offered.
Tax on RRSP After Death: The Deemed Disposition Rule
This is the part that surprises most families, regardless of whether a beneficiary is named.
The CRA treats the full value of an RRSP as income in the year of death. This is called a "deemed disposition." The entire fair market value of the RRSP on the date of death is added to the deceased's income on their Terminal T1 Return, the final personal tax return filed by the executor.
On a large RRSP — say, $150,000 — this creates substantial tax owing in the final year. The tax rate depends on the deceased's total income for that year, and because the RRSP is added on top of any other income earned before death, it frequently pushes the estate into the highest marginal bracket.
The executor must account for this tax liability before making any distributions. Distributing the estate to beneficiaries before obtaining a CRA Clearance Certificate — which confirms all taxes, penalties, and interest have been paid — exposes the executor to personal liability for whatever tax remains outstanding.
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The Spousal Rollover: The One Major Tax Exception
There is a significant exception that eliminates or defers the immediate tax hit: the spousal rollover.
If the named beneficiary of the RRSP is the deceased's spouse or common-law partner, the funds can be transferred directly into the surviving spouse's own RRSP or RRIF. When this happens, the RRSP value is not added to the deceased's income. Tax is deferred entirely until the surviving spouse eventually withdraws the funds from their own registered account.
For married spouses in New Brunswick, this is almost always the most tax-efficient outcome — and it requires the surviving spouse to have their own RRSP or RRIF open to receive the funds.
Common-law partners are also eligible for the spousal rollover, but New Brunswick executors should note the sharp contrast here: while a common-law partner can receive a spousal RRSP rollover if they were named as beneficiary, they have no automatic inheritance rights under the Devolution of Estates Act if the deceased died without a will. The RRSP beneficiary designation operates independently of intestacy law. The common-law partner gets the RRSP directly; they get nothing from the rest of the estate unless they successfully apply under the Provision for Dependants Act within the strict four-month deadline.
What If the Beneficiary Is a Child?
If the named beneficiary is a financially dependent child or grandchild, there are additional rules. A dependent child under 18 can roll the RRSP proceeds into an annuity that pays out to age 18. A child who is dependent due to mental or physical infirmity can roll the funds into their own RRSP. These transfers avoid the deemed disposition rule.
An adult child who was not financially dependent does not qualify for a rollover. The full RRSP value is taxable income in the deceased's Terminal T1 Return, and the adult child receives the after-tax funds — after the estate has settled the CRA's claim.
Practical Steps for New Brunswick Executors
When you locate an RRSP in the estate, work through these steps:
1. Contact the financial institution immediately. Ask for confirmation of whether a beneficiary is on file, who that beneficiary is, and what documentation they require. Most institutions need a certified copy of the death certificate and completion of their internal claim form.
2. Determine if a spousal rollover applies. If the surviving spouse is named, consult with the institution and a tax professional about structuring the transfer properly. The rollover election must be made correctly on the Terminal T1 Return.
3. Account for the tax liability. Even with a rollover, the executor must flag the RRSP in the return and ensure the rollover election is filed. If no rollover applies, the CRA must receive tax on the full RRSP value. Set aside funds from the estate to cover this before distributing anything to beneficiaries.
4. Include the RRSP in estate inventory only if it flows into the estate. If a named beneficiary exists, the RRSP is a non-estate asset and is excluded from probate calculations. If it flows into the estate, it is included.
5. Obtain the Clearance Certificate before final distribution. The CRA's Clearance Certificate confirms that all taxes have been settled. Without it, the executor is personally responsible for any outstanding tax if the funds have already been paid out.
TFSAs Work Differently
A quick note for executors dealing with multiple registered accounts: a TFSA (Tax-Free Savings Account) is not subject to the deemed disposition rule in the same way. If the spouse is named as the TFSA's "successor holder," the account transfers directly to them and remains a TFSA — no tax consequences. If a non-spouse is named as beneficiary, the TFSA funds are paid to them tax-free, but the account loses its TFSA status and future growth is taxable.
For New Brunswick estate administration purposes, TFSAs with named beneficiaries bypass the estate and do not count toward probate calculations, just like RRSPs.
Understanding the Full Picture
Registered accounts are often the largest financial assets in a New Brunswick estate. Getting the beneficiary designations, rollover elections, and CRA filings right is essential to protecting both the surviving family and the executor from unexpected tax bills.
The When Someone Dies in New Brunswick — Estate Settlement Guide covers the full executor tax workflow: Terminal T1 Returns, T3 Trust Returns, CRA Clearance Certificates, and the specific forms and deadlines that apply under New Brunswick law. It also includes a complete asset inventory template that distinguishes between probate assets and non-probate assets — so executors know exactly which registered accounts to include in their probate application and which to handle separately.
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