What Happens to Your RRIF When You Die in Canada

What happens to your RRIF when you die depends on 1 detail you set up today. Your RRIF doesn’t cash out automatically. The account pauses, the monthly payments stop and the investments keep moving with the market until your advisor confirms who’s legally entitled to the money. From there, it follows 1 of 3 paths.

Show Notes: What Happens to Your RRIF When You Die in Canada

Nicole: In today’s episode, what we’re gonna talk about is what happens to your RRSP or RRIF when you die. The main questions we’re gonna think about are: once this event happens, who do you call and what happens first? What happens behind the scenes? What is your advisor doing behind the scenes for you when something like this does happen? Why is it important to make sure you know your beneficiaries and the three buckets that this money can flow to, depending on the estate planning? And then just some high-level things that you should be checking on from an estate planning perspective.

Your RRIF Pauses When You Die

Nicole: You can spend 30 or 40 years building an RRSP and eventually turn it into a RRIF, take an income from it every single month, and then still have absolutely no idea what happens to that account when you die. Does it get sold? Do the payments keep coming? Does your spouse automatically get that money? Who actually gives the instructions once this happens? Today, we’re gonna go behind the scenes so you understand exactly what happens to your RRSP or RRIF after death, what we’re gonna do as advisors for you on the back end and the three broad directions that money can ultimately go. So let’s start at the very beginning. Someone has passed away, Zena. What is actually happening to this account? Let’s say a RRIF. What happens to a RRIF account? 

Zena: Okay. Well, it doesn’t just magically disappear. It doesn’t just all of a sudden roll into cash, and that’s a question that we get asked all the time. As soon as we’re notified, it stays exactly as is, but then it moves into the estate settling process. 

Nicole: Right. 

Zena: And so that’s the death processing side of things. We need to figure out who is legally entitled to this account. 

Nicole: Okay. And I think, too, sometimes the fear is, okay, so someone’s passed away. Is there a tax? Does tax come into play right away? Do we have to be like, “Oh my God, we’re gonna be taxed right away”? Is this something that people have to worry about, or is it just… 

Zena: No, so we actually pause, and we have to gather all our things. We have to gather all the paperwork, and we have to figure out what we need. This next step actually depends on how the account was set up. Is there a spouse or a common-law partner that is the beneficiary that it can roll into? So that’s what happens with the RRIF. You can roll it over to your spouse. Sometimes there’s an idea that all of a sudden you have to sell everything that minute. 

Nicole: Right. 

Zena: And you don’t. It’s just figuring out what those steps are. Is there a spouse? Is there a beneficiary, somebody else named, or is it gonna go to the will? 

Nicole: Right. So okay, I think part of it is, this happens. Phone call to your advisor. And what do we say to them right off the hop? 

Zena: Condolences. I’m so sorry. It’s never a great thing. It’s a tough conversation because then in our head we start putting on our hat of, okay, behind the scenes. Behind the scenes and behind the curtain, what is everything that we need? And so that’s where we’re already starting to think about what we need to gather. First step is we’re letting them know, “Okay, hey, listen. This is now just gonna become part of our process. Nothing’s gonna change. We’re gonna stop and gather some intel, and let us do our figuring out of what’s gonna happen to this after that.” But we do have to be notified, and we’re gonna ask for the date of death so that we can have that on file right away. 

Nicole: Right. Thanks. So there’s behind-the-scenes stuff, and there’s paperwork that’s gonna have to get done. There’s some information that we need. But like you said, there’s nothing from an alarm bell standpoint. Yes, this is a big event, and this is gonna be a tough one for us, but we can take care of you on the back end and behind the scenes. We will gather the information we need. 

Zena: Yes. And so that’s where it’s time to pause. You’ve let us know, and we take a look at the account. If there are monthly payments, so if it’s a RRIF, that’s because the income tap has been turned on. And so we’ll check that out, and we’ll let the person know, “Hey, listen, this income isn’t gonna be deposited into the bank account anymore. This is a pause.” Some people think everything automatically gets turned to cash. It doesn’t. It just pauses. It just sits there. So if it’s in a market investment, it’s still gonna move with the market, unless there’s a reason why we want to move it to cash. But for us to do that, we have to know who to talk to. We don’t have authority to just do that. So that’s gonna take some investigation. That’s where we’re gonna start to gather our intel and find out what is on this account. Is there a beneficiary? Is it gonna roll to the spouse? Or is it gonna go to the estate? And we need different things for each one of those three things.

The 3 Places Your RRIF Can Go

Nicole: Right. And this is something that’s important. This is planning that happens ahead of time. Estate planning is part of beneficiary designation. And so there are three buckets, and you’ve mentioned them all already, so we’ll go back and break it down a little bit. There are gonna be three ways that a RRIF can flow to the beneficiary. The first would be beneficiaries. You can name beneficiaries on a RRIF. 

Zena: And that’s not your spouse. You can name somebody else. Adult children is a very common one that we’ve seen. 

Nicole: Yep. 

Zena: So you can put people’s names on there. And then the other one is where you’ve put the estate, and that means that everything is gonna go into the pot of whatever the will says. 

Nicole: Right. 

Zena: And then the executor, the person who decides and will administrate all your wishes, will then release that on their own time. And so we have to gather our intel right now and find out what is actually on that account for those, usually one of those three directions. So that’s the legal route that we have to figure out.

Check Your Beneficiary Designations

Nicole: Right. And then from a planning standpoint, the one that we love for spouses is the spousal rollover. 

Zena: Mm-hmm. 

Nicole: There’s nothing better. And so again, when someone passes away and there is a RRIF, if there is a spouse or a common-law partner that’s been named, for a RRIF specifically, there’s actually a little bit of different language. It’s successor annuitant versus beneficiary. And we’ve distinguished that there is a difference between the two. Maybe talk a little bit about why we love the rollover so much? 

Zena: Tax, tax, tax. You get to save some tax. And it also means that the spouse then puts their name on it, they assume it and take it over, and then they can continue with monthly payments if they want. It avoids some of the big, heavy tax issues that happen when there’s a beneficiary on there. 

Nicole: Right. So this is all to say, when something like this happens, the teachable moment here is that beneficiary designations are important. It’s an important part of planning. It’s an important part of estate planning specifically. And so if there’s anything you take from today’s episode, it’s to go check your beneficiary designations on all your registered investments. And even wills. This is a good time to pull up wills. 

Zena: This is the planning that happens before something happens. We’ve already discussed it and figured it out so that when we get that call, we just do our double checks and we do our due diligence. A lot of people think that as soon as it happens, it’s all of a sudden just cashed out. It’s not. It’s a pause to figure things out and gather all the right paperwork. And as advisors, we do all that for you. We make it pretty simple because you can imagine there’s a lot of grief and some issues going on, so we want to make it as easy as possible. And it doesn’t just roll into the executor making the decisions. It depends on that beneficiary. 

Nicole: Right. And again, this is part of the planning. This is part of the proactive planning that we’ve done with every single client before something like this even happens. 

Zena: Yeah. And so I think the biggest reason we want to talk about it today is because a lot of people think that as soon as they’re notified that someone’s passed away, all of a sudden there’s a deposit going into a bank account. 

Nicole: Right. 

Zena: I’ve had that. They’ll be like, “Okay, what bank account are you sending it to?” And it’s like, no, we actually gotta breathe. We gotta do all the paperwork and the legal route. We need to make sure we have the right one of those three decisions we talked about: is it going to the spouse as a rollover, is it going to the estate or is it gonna go out to beneficiaries? And each one of those things has a different collection of documents that we need before it can happen. So generally, I would say rollovers to spouses can happen quickly. 

Nicole: Yep. 

Zena: Within a week or two, as soon as there’s a death certificate and we’ve got the forms. If it’s going out to beneficiaries, that’s gonna take a little longer, because then we also wanna give really good advice about tax. 

Nicole: Definitely. 

Zena: And then if it’s going to the will, that’s gonna take a little longer, depending on whether there are some legal steps that have to happen. So that can take a little bit longer. 

Nicole: Yeah. 

Zena: And it doesn’t just automatically cash out. 

Nicole: Right. 

Zena: So that’s a conversation that has to be had. 

Nicole: That’s the important thing. So it’s two points: it doesn’t cash out automatically, and also just double-check the beneficiaries.

What’s Next

Zena: If you want some more information, check us out on astrafinancial.ca. We also have Astra University, and we like to give you some free resources in there. We have a retirement course as well, and there’s a freebie in there where you can get a little piece of that course, so check it out.