RRSPs and TFSAs at Death – A Complete Guide by a Montreal CPA Firm Near You

Introduction

RRSPs and TFSAs are two of the most important retirement and savings tools available to Canadians, but many people are unaware of what happens to these accounts when they die. The tax treatment of RRSPs and TFSAs at death can dramatically impact the financial security of a surviving spouse, the value of an estate, and the taxes paid by beneficiaries. Understanding the rules surrounding beneficiary designations, spousal rollovers, and estate administration is essential for proper planning. This guide explains exactly how RRSPs and TFSAs are treated upon death and how to avoid costly mistakes.

Legal and Regulatory Framework

RRSP and TFSA rules are governed by sections 146 (RRSP) and 146.2 (TFSA) of the Income Tax Act. Upon death, RRSPs and RRIFs are generally fully taxable as income on the deceased’s final return unless transferred to a qualifying beneficiary (usually a spouse or financially dependent child or grandchild). TFSAs, by contrast, remain tax-free on death, but only amounts existing at the time of death are tax-free—post-death income may be taxable depending on the beneficiary designation. Proper beneficiary designations are critical and must align with wills and estate plans.

Key Court Decisions

In Jin v. Canada, the court emphasized the importance of clear beneficiary designations in preventing unintended tax consequences. In LeBlanc Estate v. Canada, RRSP proceeds were taxed in the estate because the deceased failed to designate the spouse correctly. In O’Grady Estate v. Canada, the court ruled that TFSA over-contributions discovered after death remain subject to penalties unless relief is granted. These decisions highlight the importance of coordinated estate and beneficiary planning.

RRSPs at Death

When a taxpayer dies, their entire RRSP or RRIF balance is included as income on the Final T1 Return, often pushing the deceased into the highest tax bracket. However, the tax can be deferred if the RRSP is transferred to:

• a surviving spouse or common-law partner

• a financially dependent child or grandchild (with disability or low income)
  To qualify, the RRSP must be transferred directly to the beneficiary’s RRSP, RRIF, or eligible annuity. Beneficiary designations must be correct, or the estate may be taxed even if the spouse ultimately receives the funds.

RRIFs at Death

RRIFs follow similar rules. They are included as income unless transferred to a qualifying spouse or dependent. If a spouse is named as the successor annuitant, the RRIF continues seamlessly in the spouse’s name without triggering income tax on death. If named merely as a beneficiary, the spouse can still transfer the RRIF tax-free, but the process is less automatic and requires a rollover election.

TFSAs at Death

TFSA treatment differs significantly from RRSPs: the TFSA balance at date of death remains 100% tax-free when transferred to any beneficiary. However, any growth after death becomes taxable to beneficiaries unless the spouse is named as a successor holder. A successor holder assumes the TFSA as if it were always theirs—no tax, no reduction of their own TFSA room, and continued tax-free growth. If the spouse is only a beneficiary, the TFSA does not continue, and post-death income becomes taxable.

Common Mistakes That Create Large Tax Bills

• Naming the estate as RRSP or RRIF beneficiary instead of the spouse

• Failing to designate a successor holder for a TFSA

• Assuming that children can receive RRSP funds tax-free

• Not coordinating beneficiary designations with wills

• Holding RRSPs or RRIFs outside of Canada without reviewing tax treaties

• Forgetting to update beneficiaries after marriage, divorce, or separation
  These errors can cost families tens of thousands in unnecessary tax.

Executor Responsibilities

Executors must: confirm beneficiary designations, determine which accounts qualify for rollover, prepare the final T1 return, report RRSP/RRIF income, transfer assets to spouses if eligible, file T3 estate returns if post-death income is generated, document TFSA balances and growth, and obtain CRA Clearance Certificates before distributing assets. Executors who distribute assets before paying taxes risk personal liability.

Mackisen Strategy

At Mackisen CPA Montreal, we help families structure RRSP, RRIF, and TFSA beneficiary designations properly, avoid unexpected tax at death, implement spousal rollovers, and manage estate filings. During estate administration, we prepare all required tax returns, determine rollover eligibility, calculate taxes, and ensure financial institutions process transfers correctly. Our coordinated approach prevents errors and protects family wealth.

Real Client Experience

A Montreal widow avoided a large RRSP tax bill after we corrected documentation and applied a retroactive spousal rollover. An estate with multiple TFSAs faced unexpected taxes due to improper beneficiary designations; we reconstructed balances and filed corrective elections. A client who named the estate instead of the spouse as RRIF beneficiary paid unnecessary tax until we restructured their estate plan. Another estate avoided probate delays after we coordinated TFSA successor holder transfers.

Common Questions

Is TFSA money always tax-free at death? Only the value at death—growth afterward may be taxable. Is RRSP tax deferred automatically to the spouse? Only if properly designated. Can children receive RRSPs tax-free? Only if financially dependent. Do RRIFs need a rollover? Yes unless the spouse is a successor annuitant. Should I update beneficiaries regularly? Absolutely.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures RRSPs, RRIFs, and TFSAs are structured for maximum tax efficiency at death. Whether planning ahead or administering an estate, we safeguard your wealth, reduce taxes, and guide your family with expertise and care.