Here's something that surprises a lot of Canadians: your RRSP doesn't pass through your will.

It doesn't matter what your will says. It doesn't matter who your heirs are. The person named on your RRSP beneficiary designation form gets the money — directly, outside of your estate, with no probate, no executor, and no delay.

That's actually a good thing — when your designation is correct. But when it's outdated, missing, or set up without understanding the tax consequences, it can create serious problems for your estate.

How RRSP Beneficiary Designations Work

When you open an RRSP, your financial institution asks you to name a beneficiary. That designation is a contract between you and the institution — it operates completely independently of your will.

On death, the institution transfers the RRSP proceeds directly to the named beneficiary. The funds never touch your estate. They don't go through probate. Your executor has no control over them.

The same rules apply to:

  • TFSAs (Tax-Free Savings Accounts)
  • RRIFs (Registered Retirement Income Funds)
  • Group RRSPs through your employer
  • Life insurance policies with named beneficiaries

The Tax Problem Most People Don't Anticipate

Here's where Canadians most commonly get caught off guard.

When you die, CRA treats your RRSP as if you withdrew the entire balance on the day of death. That full amount is added to your income in your final tax return — and taxed at your marginal rate.

On a $400,000 RRSP, that could mean a tax bill of $150,000–$200,000. That tax bill is owed by your estate — not by the beneficiary who received the money.

So the beneficiary gets the full $400,000. Your estate pays the $150,000+ tax bill. If your estate doesn't have enough liquid assets to cover it, other beneficiaries — the ones inheriting your house, your savings account, your investments — may receive less than you intended in order to pay CRA.

The Spousal Exception

The major exception to the tax-on-death rule is a surviving spouse or common-law partner. If you name your spouse as your RRSP beneficiary, the funds can roll over into their RRSP or RRIF tax-free. No income inclusion on death. The tax is deferred until your spouse withdraws the funds or dies.

This is why naming your spouse as primary RRSP beneficiary is almost always the right move for married or common-law couples.

A similar rollover is available for a financially dependent child or grandchild, but the rules are more restrictive.

What "Estate" as Beneficiary Actually Means

Some Canadians leave their RRSP beneficiary blank, or name "my estate." This is usually a mistake.

When your estate is the beneficiary:

  • The RRSP goes through probate, which takes time and costs money (probate fees vary by province)
  • The funds are subject to creditor claims against your estate
  • Distribution is delayed until the estate is fully settled

There are limited situations where naming your estate makes sense — usually when there are complex creditor concerns or trust structures involved. For most Canadians, a named individual beneficiary is better.

The Outdated Designation Problem

This is the most common issue we see: a beneficiary designation that hasn't been updated in years or decades.

Common scenarios:

  • You named an ex-spouse before your divorce — and never changed it
  • Your named beneficiary has died — and there's no alternate on file
  • You named your parents when you were young and single — but now have a spouse and children
  • You named one child but meant to split it equally among three

Unlike your will, beneficiary designations don't automatically update when your life changes. You have to actively go to each financial institution and update each account. Divorce does not automatically remove an ex-spouse as your RRSP beneficiary in most provinces.

TFSA: Different Rules, Same Lesson

TFSAs have their own wrinkle. In most provinces, you can name a successor holder (for spouses/common-law partners) rather than just a beneficiary. A successor holder takes over the TFSA itself — keeping its tax-exempt status intact. A beneficiary just receives the funds, which lose their TFSA status after death.

If you're married or in a common-law relationship and your TFSA names your spouse as a beneficiary rather than a successor holder, you may be leaving tax-free growth on the table. It's worth confirming which designation type you have on file.

How to Audit Your Beneficiary Designations

Pull out or request a copy of your beneficiary designations from every financial institution where you hold registered accounts. For each one, ask:

  • Is the named beneficiary still alive?
  • Is the named beneficiary still someone I want to inherit this?
  • Have I named an alternate in case my primary beneficiary predeceases me?
  • Do I understand the tax consequences for my estate?
  • For TFSAs: is my spouse named as successor holder or just beneficiary?

This review should happen every time you go through a major life change — marriage, divorce, the birth of a child, the death of a named beneficiary — and at minimum every three to five years.

Beneficiary Designations and Your Will: Working Together

Your will and your beneficiary designations aren't competing documents — they're complementary. Your will handles your estate assets. Your beneficiary designations handle registered accounts and insurance directly.

The key is making sure both are current, consistent with your intentions, and that you understand which assets flow through which channel. A will alone is not enough to cover everything you own.

When they work together correctly, registered accounts pass quickly and privately to the people you choose, while your estate handles everything else according to your wishes.

The Bottom Line

Your RRSP beneficiary designation is one of the most financially significant documents you have — and most Canadians set it once and forget it. Take an hour to pull your designations, review them against your current life, and update anything that's stale.

It won't cost you anything. The alternative — an outdated designation discovered after death — can cost your family far more than you'd expect. Review our full estate planning checklist to make sure nothing falls through the cracks. Find your city — we serve Lethbridge, Toronto, Vancouver, and more.