Q&A: Children inheriting RRSPs

Question: If I do not have a wife (beneficiary) can I transfer
my RRSP or RRIF to my children in my will so that my children do not have to pay
tax? Or is it mandatory the children have to pay the tax? I know inheritance tax
does not exist in Canada but is the law different for the RRSP and RRIF? – George N.

Gordon Pape answers: Unless your children are still dependants,
the assets in an RRSP or RRIF cannot pass to them on a tax-free basis. Although
Canada does not have an estate tax as such, our laws are structured in such
as way as to achieve much the same result. In the case of a registered plan,
the assets can pass tax-free to a spouse (including common-law and same-sex
partners) or to a child or grandchild who is financially dependent on you. The
definition of “financially dependent” is quite narrow and in such
cases there are rules as to how the money is used. Check with the Canada Revenue
Agency for more details.

In all other cases, the assets of an RRSP, RRIF, LIF or other registered plan
are considered to have been taken into the deceased’s income when the
final tax return is filed by the executo and tax is assessed at the full marginal
rate. Whatever is left can then be distributed to the children.