Estate planners often suggest that the RRSP/RRIF holder designate a beneficiary of the plan. There are many advantages of estate plans:
- Probate fees can be avoided because the funds transfer direct to the beneficiary.
- The funds are not exposed to the liabilities of the deceased’s estate.
- No elections are required for the refund of premiums’ status.
- Premium refunds allow a tax-deferred transfer of funds.
- Reporting on the transfers to a surviving common-law partner or a spouse can be avoided.
- It avoids the exposure where a beneficiary will not sign the agreement which would require the estate to pay tax on the account value.
- It avoids the situation where the executor overlooks the situation entirely.
- There may be advantages to leaving the funds to the estate instead of the individual.
- There may be additional planning opportunities because the elections allow precise amounts to be reflected as a refund of premiums or reported on the terminal tax return.
- The executors can use elections to provide flexibility to determine how refund of premiums and other assets will be allocated between the eligible beneficiaries. The refund of premiums might be directed to lower income beneficiaries and/or beneficiaries who could make use of the advantages while designating other assets to other beneficiaries.
- A spouse who does not transfer the funds to his or her RRSP/RRIF but instead uses the money for other purposes, forces the deceased’s estate to pay the tax. This might not please some of the beneficiaries.
- A testamentary trust could be funded. This is advantageous where refund of premiums and/or rollovers are not available. It is also useful if the plan holder does not want an amount left to those beneficiaries.