Estate Planning: The Importance of Beneficiary Designations

UPDATE (May 15, 2026): This article has been updated to reflect changes in legislation, regulations, and accounting practices since the original date of publication (February 11, 2020).

When you open a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), or Tax-Free Savings Account (TFSA), the account documents typically include a section for naming a beneficiary.

It can feel like a simple administrative step, but beneficiary designations can have a significant impact on how assets are transferred after death, how much tax is triggered, and whether certain assets flow through your estate.

Because registered accounts are often a meaningful part of someone’s overall wealth, it’s important to understand what happens when a beneficiary is named, what happens when one isn’t, and how these designations fit into your broader estate plan.

What is a beneficiary designation?

A beneficiary designation is a way of naming who should receive the value of your RRSP, RRIF, or TFSA after you die.

If you make a designation, the plan value generally passes directly to the person or people named. If you don’t make a designation, the plan value will usually become part of your estate and be dealt with by your executor according to the terms of your will.

This can affect timing, privacy, probate fees, and estate administration. However, beneficiary designations should not be reviewed in isolation. They should be coordinated with your will and broader estate plan to ensure your assets are distributed the way you intend.

RRSPs and RRIFs

When you die, the fair market value of your RRSP or RRIF is generally included in income on your final tax return. If someone other than your spouse or common-law partner is named as beneficiary, the plan value may pass to that person directly, but your estate may still be responsible for the related income tax.

This can create a mismatch: the beneficiary receives the registered account, while the estate is left with the tax liability. Depending on the size of the RRSP or RRIF, that tax bill can be significant and may reduce what is available to other beneficiaries under the will.

If your spouse or common-law partner is named as beneficiary, the value of your RRSP or RRIF may be transferred to their RRSP or RRIF on a tax-deferred basis, provided the required conditions are met. For RRIFs, it may also be possible to name your spouse or common-law partner as a successor annuitant, allowing the RRIF to continue in their name.

In some cases, rollover treatment may also be available for a financially dependent child or grandchild. These rules are more complex, so it’s important to get advice before assuming how a registered account will be taxed.

TFSAs

TFSAs are treated differently from RRSPs and RRIFs. The fair market value of a TFSA at the date of death can generally be paid to beneficiaries tax-free. However, income or growth earned after death may be taxable depending on how the TFSA is structured, who receives it, and how quickly it is administered.

For spouses and common-law partners, there is an important distinction between being named as a successor holder and being named as a beneficiary.

If your spouse or common-law partner is named as successor holder, they generally become the new holder of the TFSA. The account can continue to exist, and the value of the TFSA at death, along with income earned after death, generally remains sheltered from tax.

If your spouse or common-law partner is named as beneficiary instead, they may still be able to transfer an amount to their own TFSA without affecting their contribution room, but specific CRA forms and timing requirements apply.

For beneficiaries who are not a spouse or common-law partner, the TFSA value at the date of death may generally be received tax-free, but any post-death growth may be taxable.

Probate fee savings

If no beneficiary is designated, the value of an RRSP, RRIF, or TFSA may become part of your estate. In B.C., this can result in probate fees applying to the value of those assets. Probate fees on estate values over $50,000 are generally 1.4%.

Naming beneficiaries can help reduce the value of assets flowing through the estate, which may create probate fee savings. However, probate savings should not be the only consideration. Tax consequences, family dynamics, creditor concerns, and the terms of your will should all be reviewed together.

Common beneficiary designation issues

Beneficiary designations are easy to set up, but they can create problems if they are incomplete, outdated, or inconsistent with the rest of your estate plan.

Common issues include:

• naming a former spouse or partner by mistake;
• failing to update designations after marriage, separation, divorce, or the birth of a child;
• naming minor children directly without considering how funds will be managed;
• assuming RRSPs, RRIFs, and TFSAs are taxed the same way after death; and,
• overlooking how tax owing by the estate may affect other beneficiaries.

These issues are often preventable with regular reviews and coordination between your accountant, lawyer, and financial advisor.

Review your designations regularly

Beneficiary designations should be reviewed whenever your personal or financial situation changes. This includes major life events such as marriage, entering a common-law relationship, separation, divorce, the birth or adoption of a child, the death of a beneficiary, or a significant change in your assets.

Even if nothing major has changed, it’s worth reviewing your designations periodically to confirm they still reflect your wishes and align with your will.

If you haven’t reviewed your RRSP, RRIF, or TFSA beneficiary designations recently, now is a good time to do so. Contact your DMCL advisor to discuss how your designations fit within your broader estate plan.