What Happens to an RRSP When the Last Surviving Spouse Dies in Canada?
When the last surviving spouse dies, the RRSP becomes taxable all at once: what happens, and how to plan ahead to reduce the bill.
You have worked hard all your life to save, in particular by contributing to your RRSP for retirement.
Thanks to your good financial habits and discipline, you may have started saving very early, to the point where you may not use all of your investments once you retire.
But have you ever wondered what happens to your RRSPs or RRIFs when you pass away?
Here is a brief summary to help you better understand what happens to these plans at that time.
When the last surviving spouse dies and there is no eligible spouse or common-law partner to whom the RRSP can be transferred, the full value of the RRSP is treated as taxable income in the year of death.
Example: RRSP value of $1,000,000 at death in Quebec (2025)
- Tax treatment:
- The full $1,000,000 is added to the deceased’s income on their final tax return.
- Marginal tax rate in Quebec (2025):
- For income above approximately $253,414, the combined federal and provincial marginal tax rate is approximately 53.31%.
- Estimated tax owing:
- Using a simplified estimate: $1,000,000 x 0.5331 = $533,100
What can you do to preserve as much of your assets as possible? Here are a few strategies to reduce tax at death:
- Gradual withdrawals from an RRSP or RRIF in retirement at a marginal rate lower than 53.31%.
- Charitable donations in your will (eligible for tax credits).
- Life insurance to cover the tax liability. In addition to covering the tax, this strategy is likely to create wealth and pass on a larger estate to future generations.
The first step is to work with an advisor who will take the time to work on your financial plan, covering: your short-term finances (e.g., budgeting), retirement, taxes, investments, risk management and estate planning.
The Spousal Rollover: A Tax Deferral, Not an Exemption
As long as an eligible spouse or common-law partner survives, the RRSP or RRIF can generally be transferred into their own plan with no immediate tax. This is known as the “tax rollover”: the tax is not eliminated, it is simply postponed.
The bill comes due when the last surviving spouse passes away. Since the full value of the plan is then added to the income on the final tax return, the estate can face a substantial tax liability, often at the very moment the family least expects it.
Exceptions for Certain Children or Grandchildren
In some situations, a tax-advantaged transfer remains possible even without a surviving spouse. A financially dependent child or grandchild, particularly one living with a disability, may in certain cases receive the funds with special tax treatment, for example through an annuity or a transfer to a plan suited to their situation.
These rules are strict, however, and how they apply depends on each family’s specific circumstances. It is wise to confirm with a tax specialist before relying on these exceptions in your planning.
Who Pays the Tax, and How Can You Prepare?
As a general rule, it is the estate that must pay the tax related to the RRSP or RRIF. This can shrink the inheritance intended for loved ones, or even force the sale of assets under less-than-ideal conditions. In Quebec, RRSPs are generally passed on through the will, which makes an up-to-date, well-drafted will all the more important.
A complete estate plan helps you anticipate this tax bill: the order in which accounts are drawn down, planned charitable giving, life insurance, and appropriate will provisions. Since every situation is unique, it is strongly recommended that you consult a notary and a tax specialist to validate your strategy.
Let’s Talk It Over
The Pérennité Wealth Management team can review your situation, run different scenarios and coordinate with your other professionals. Feel free to contact us to discuss it, with no obligation.
