I’ll never forget the call. I was in my first few years of practice in the estate planning world and I was speaking with a woman who’d recently lost her spouse. She’d just spoken with her husband’s financial institution about what she’d need to do to receive the proceeds of his Registered Retirement Savings Plans (RRSPs). She’d expected she would need to provide a copy of the death certificate and perhaps the Will, and then the process of transferring the proceeds into her own RRSP would begin.

But no. There was a hitch. She was told her spouse’s ex-wife was the named beneficiary on the accounts and that the woman he’d not been married to for over a decade would be receiving the RRSP proceeds. There must be a mistake. She was certain of it. As part of the divorce agreement, her husband and his ex-wife had signed away rights to each other’s assets. Her husband’s Will left everything to her. Wasn’t that enough to ensure she received the RRSP proceeds?

It was one of the most challenging calls I’d had in my short professional career. After asking all the relevant questions and reviewing the documentation, I had to tell her there was nothing she could do to fix it. Her husband had not updated his beneficiary designations and while the divorce agreement said he was not obligated to give his ex-wife any assets, by not updating his beneficiary designation he had essentially voluntarily done so. But the bad news didn’t stop there. Because the proceeds were not passing to his current spouse, his estate would be responsible for the tax on the value of the RRSP.

So, not only was this grieving widow not going to receive the proceeds of the RRSP, but other assets would also need to be liquidated in order to pay the nearly 50% tax on the RRSP’s value. She was devastated. I never wanted another grieving family member to feel the pain and confusion she was feeling.

Understanding the how and why of beneficiary designations is an essential part of your financial strategy. Many people are unaware of the rules and implications of these seemingly straightforward decisions, so let’s start with the basics and go from there.

Different types of designations for different types of accounts

You may be surprised to learn there is more than one kind of "beneficiary designation". Depending on the type of registered account you are dealing with, you may have the opportunity to name a beneficiary, contingent or alternate beneficiary, successor holder or successor annuitant.


A Tax-Free Savings Account (TFSA) allows two types of designations: beneficiary and successor holder. Only a spouse or common law partner may be named as a successor holder. If an account holder dies with this kind of designation in place, the TFSA continues with the surviving spouse simply replacing the original owner. Even if the surviving spouse has his or her own TFSA and no available contribution room, the investments in the successor account enjoy tax-free status in the hands of the new owner.

The other type of designation is a beneficiary. Upon the death of a TFSA holder with a named beneficiary, the investments pass to the named individual(s). Any income earned on the investments between the date of death and the time the funds are transferred to the beneficiary are subject to tax. Only if the beneficiary has contribution room in their tax-free or tax-deferred accounts, can they shelter the funds from tax. If there is no existing contribution room, he or she would need to wait until additional room became available. In the meantime, the assets would be exposed to tax. If a spouse is named as “beneficiary,” there are steps they can take to get the “successor holder” treatment, but it is a far more involved process.


For an RRSP, there is only one type of designation available: beneficiary. If the named beneficiary is a married or common-law spouse and transfers the funds into his or her own registered account, no tax will be payable on the funds unless and until they are subsequently withdrawn. Similarly, if the funds transfer to a Registered Disability Savings Plan (RDSP) for the benefit of a financially-dependent child or grandchild, tax continues to be deferred. But to the extent the funds transfer to someone other than a spouse or financially-dependent child or grandchild (or don’t flow into such beneficiary’s RRSP, Registered Retirement Income Fund (RRIF) or RDSP) the full value of the RRSP will be taxable in the deceased’s year of death. There may be good reasons not to name a beneficiary on an RRSP in certain circumstances. For example, it may make sense to have the proceeds paid to the estate before passing to a beneficiary under a Will to make sure the tax bill associated with the value of the RRSP can be paid from the RRSP proceeds and not some other asset. Or when you’re leaving the proceeds to a minor beneficiary or someone who would benefit from the protections of a trust.


A RRIF provides two options from which to choose: beneficiary or successor annuitant. Just like the “successor holder” on a TFSA, only a spouse or common law partner can be named “successor annuitant” of a RRIF. The investments are transferred “in kind” (as is) to the surviving spouse who then continues as the owner of the account. There is no immediate tax liability and the surviving spouse will receive the RRIF payments in place of the deceased. If the successor annuitant transfers the funds into an RRSP there is no impact to their contribution room. Taxes may also be deferred if the proceeds are transferred to an RDSP for the benefit of a financially dependent child or grandchild.

As for naming a beneficiary, the rules are similar to those about naming a beneficiary under an RRSP.

Other types of accounts and considerations

Locked-in plans, segregated funds, pensions and insurance contracts all have distinct rules about beneficiary designations as well. Knowing your options is critical to making the best choice for you. What does it mean to name an irrevocable beneficiary? What impact does naming a beneficiary have on creditor protecting the registered plan or insurance policy? What's the appeal of being able to name a beneficiary on a segregated fund? What's the difference between naming a beneficiary on the plan document itself (allowed in all provinces and territories except Québec) and naming the beneficiary in a Will? Your advisor can help you understand the answers to these questions and more.

Ensuring the right result

In addition to understanding the difference between the various types of designations, you can take further steps to ensure your accounts go to the right people in the best way. Things like naming an alternate or contingent beneficiary just in case your beneficiary predeceases you are standard practice, but make sure you're thinking about your options and the implications just as carefully as you did for the primary designation. And just as important as making the right designation is knowing why and when to update your designations. Marriage or becoming common law, separation and divorce are critical times to review your documents. But there are less obvious times as well. We recommend reviewing your designations with your financial advisor as part of your regularly scheduled review. And in between those reviews, make sure you're sharing important life events with your advisor so they can help identify when it may be appropriate to make a change.

Important Information:

Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.