It’s a big mistake that you may not even know you’ve made – you’ve forgotten to add a beneficiary to your RSP or RIF.
When you’re setting up an RSP (or RIF) OR transferring funds from an RSP to an RIF, you need to triple check the paperwork and make sure your beneficiary is properly named or transferred from the previous account.
Making sure that the estate assets you’ve worked hard to save go to the people (or charities) you intend them to is the #1 reason you need to make a will and an estate plan.
Part of making that estate plan is doing your due diligence for your successor, whether it’s going to be a spouse, significant other, or executor of your estate.
That includes making sure the proper information is available and all financial assets have a plan for the future (this includes access to joint accounts, mortgages, lines of credit, etc.)
What happens when you don’t add a beneficiary to your RSP or RIF?
Forgetting to add or transfer a beneficiary to a new RSP or RIF account can result in a huge issue for your significant other or executor.
Donna Phillips is currently fighting a legal battle over $270,000 in tax loses that Canada Revenue Agency claims she owes.
- Phillips’ husband had switched his RSP into an RIF when he turned 71 (this is mandated by the government).
- No beneficiary was named and Donna’s name did not automatically transfer from the previous RSP.
- Phillips was forced to pay taxes on any money transferred from her husbands RIF into her own RSP account.
“I got a phone call from my accountant telling me I had to pay $270,000 in taxes.”Donna Phillips, Calgary Resident via Calgary CTV News
- Transferring her husbands considerable estate of $460,000 cost Phillips $270,000 in taxes.
- She was forced to take out an RRSP loan to assist in paying the very large tax bill, which eventually became a home equity line of credit.
- If she did not have financial backing and the option to take out additional mortgages, she would have lost everything.
“A new beneficiary must be named when an RSP is converted to a RIF as it’s a new contract. I suggest you share financial information with a trusted individual, including type of accounts, account numbers, location of the financial institution, your representative and location of estate documents.”Faisal Karmali, Portfolio Manager with Popowich-Karmali Advisory Group at CIBC Wood Gundy
Do you have more questions about planning your estate? You can find the answers here:
- How can I prepare my estate for my own executor?
- Who should I choose to be my executor?
- Can I include pets in my will?
- Can I name more than one executor?
- How do you include digital assets in your estate plan?
- What happens to my estate if I don’t have a will?
- What will happen to the family cottage when my parents pass away?
- I’m an executor – what do I do now?
- Passing of accounts – how does it work?
- How can I prepare to be an executor in the future?
- Free Estate Planning Resources
- Executor Preparation Course
- Canadian Executor Guide