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Buried in the boilerplate of the application form for TFSAs, RRSPs and RRIFs is an opportunity to help ensure your loved ones are taken care of after you die.

Don't blow it. In the rush to complete an account application form, it's easy to dash through the part about naming a beneficiary without considering the implications. This estate planning guide for registered accounts can help.

With the help of Wilmot George, vice-president of tax, retirement and estate planning at CI Investments, we'll look at the ins and outs for both single people and couples of designating a beneficiary for a tax-free savings account, a registered retirement savings plan and a registered retirement income fund.

First, a little background. Generally, in all provinces but Quebec, you can name an individual as a beneficiary for an account right on the application form. You don't have to, though. If you prefer, it's possible to name your estate as the beneficiary and leave it to your will to say which account assets go to whom. For this guide, we'll assume you're going to handle this on the account form.


For single or widowed individuals

Anybody can be named as a beneficiary. "The value of the plan at the time of death would go tax-free to that beneficiary," Mr. George said. That's the end of the story if the beneficiary takes the money in cash. If he or she wants to put it in a TFSA or RRSP, there must be contribution room to accommodate the money. Mr. George adds one final word regarding growth in the TFSA account between the date of death and the date of payout to the beneficiary. That growth in the value of investments after death in the account is taxable in the hands of the beneficiary.


For married individuals (or common-law)

You can choose whoever you want as a beneficiary, but we'll assume here that spouses or partners will name each other. Mr. George said the big decision to be made for couples with TFSAs is whether to name a "beneficiary" or a "successor holder."

If you name a beneficiary, your spouse gets the value of the account on the date of death tax-free, and the money can go into his or her TFSA regardless of whether there is contribution room. Any growth in the account between the date of death and the payout date is taxable to the spouse. Also, there must be contribution room in the TFSA to accommodate the growth in the account after death.

Name your spouse as successor holder and the value of the account on the date of death can likewise be transferred to him or her on a tax-free basis. But there's a key difference regarding the growth in the account after death. With the successor holder designation, Mr. George said the amount of the growth after death remains tax-free, and it can be invested in the spouse's TFSA with no concern about whether there is contribution room. In simple terms, naming your spouse as beneficiary means your TFSA would be collapsed on your death. Naming them successor holder means your account would carry on under the spouse's name. "In most cases, if you have a spouse or common law partner, naming them successor holder as opposed to beneficiary makes things cleaner."


Single, widowed

Again, anyone can be named as beneficiary. The value of the account on the date of death would be taxable to the deceased on his or her final tax return. However, growth in the account after the date of death would normally be taxed in the hands of the beneficiary. Mr. George said RRSPs offer an example of where there are differences between naming a person as beneficiary and naming your estate (your estate becomes the beneficiary if you name it directly, or you leave the beneficiary part of the application form blank).

Mr. George used the example of someone who has multiple adult siblings and wants to leave his or her RRSP assets to one sibling in particular. Where the one sibling is named beneficiary on the application, this individual would get the full value of the RRSP, while the tax liability for the plan goes to the estate. "It can create huge conflicts in a family if one brother or sister is paying taxes for another." Possible solution: Name the estate as beneficiary and specify in the will who gets what. Note that this option can lead to estate administration fees with respect to the RRSP.


Married, common-law

If you name your spouse as beneficiary, the most common outcome in the event of your death would be what's known as a tax rollover. Basically, the plan is rolled over to your spouse on a tax-deferred basis. The value of the plan at death is included in the surviving spouse's income, Mr. George said. The surviving spouse then claims a tax deduction to fully offset this income – it's called a 60(l). Taxes are deferred until the surviving spouse removes money from the plan. If the RRSP is taken in cash, then the proceeds can be taxed in the hands of either the deceased or the surviving spouse for the year of death.


Single, widowed

See RRSP for single, widowed – above


Married, common-law

You have a choice with RRIFs to name your spouse as "beneficiary" or "successor annuitant." Naming a beneficiary for a RRIF works similarly to an RRSP in terms of the tax rollover being an option and the estate of the deceased or beneficiary otherwise paying tax on cash proceeds for the year of death. In both cases, the deceased's RRIF would be collapsed.

The successor annuitant option, however, essentially allows your spouse to take over your RRIF. Mr. George said the successor annuitant option might be attractive in cases if your surviving spouse is older than you. The annual mandatory withdrawal schedule for the RRIF would be set at the age originally chosen by the original RRIF holder (normally the age of the younger deceased spouse) and not the surviving spouse. Stepping into the RRIF of a younger spouse would slow down the process of depleting the plan because the amount of the mandatory withdrawals rises annually as you age.

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