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Designating a Beneficiary for a Locked-in Retirement Savings Plan (LRSP)

When it comes to designating a beneficiary for your LRSP, you have three options.  You can choose to designate one of the following:

  • your spouse (or common-law partner)
  • your estate
  • someone other than your spouse (or common-law partner)

However, unlike designating a beneficiary for your RRSP or RRIF accounts, designating a beneficiary for your Locked-In Retirement Savings Plan (LRSP) is very restrictive.

If you have a spouse or common-law partner, your LRSP will pass to them upon your death. If you want to designate a beneficiary other than your surviving spouse or common-law partner, your surviving spouse/common-law partner must waive their spousal entitlement in the form and manner as set out in the Pension Benefit Standards Act (PBSA).

You can refer to the LRSP Federal Pension Addendum, that your financial institution will request you sign, for details of the transfer of your LRSP assets upon your death. The addendum discloses the guidelines for the administration of your LRSP under the federal Pensions Benefit and Standards Act (PBSA).

Example:  Below is a common clause contained within federal addendum outlining how your LRSP is to be administered upon your death:

Death of Annuitant

Upon the death of the Annuitant, the funds in the LRSP shall be paid to the surviving spouse of the annuitant by:

a)    Transferring the funds to another locked-in registered retirement savings plan;

b)   Transferring the funds to a registered pension plan, if the registered pension plan permits such a transfer and if the plan administers the benefit attributed to the transferred funds as if the benefit were that of a plan member with two years membership in the plan;

c)    Using the funds to purchase an immediate life annuity or a deferred life annuity in accordance with subsection 60(l) of the Income Tax Act; or

d)    Transferring the funds to a Life Income Fund (LIF).

If there is no surviving spouse, the balance of the LRSP will be paid to the Annuitant’s designated beneficiary or, if there is no valid designation of beneficiary, to the personal representatives of the Annuitant’s estate in their representative capacity.

 

The following figure illustrates your options and their outcomes when designating a beneficiary for an LRSP:

 

The following section outlines additional details for each designation of beneficiary option.

Designating my estate as the beneficiary of my LRSP where no surviving spouse or spouse waives their entitlement

By designating your estate as your beneficiary upon your death, your LRSP assets become part of your estate and their distribution is guided by the instructions in your will. Having your LRSP assets distributed through your estate may be desirable for various estate planning reasons such as the following reasons listed below:

  • You have beneficiaries that are minors.
  • You have beneficiaries that are physically or mentally dependant and require assistance in managing their finances.
  • Your will creates Inter-vivos Trusts that need to be funded with your RRSP assets.
  • Your estate will need liquid assets to help pay the income tax owing as a result of your death.
  • Your estate will require liquid funds to pay cash bequests you have made through your will.

Note: There may be additional Estate Planning reasons for designating your estate as the beneficiary of your LRSP.

When you designate your estate as the beneficiary of your LRSP assets, your LRSP investments become an asset within your estate and as such these assets will add to your estate’s Probate Fees payable. Each provincial government publishes a Probate Fee schedule and the fees vary by province.

Designating my spouse or common-law partner as the beneficiary of my LRSP

When you designate your spouse as the beneficiary of your RRSP, your spouse has the option to

  • Transfer the funds to another locked-in registered retirement savings plan.
  • Transfer the funds to a registered pension plan, if the registered pension plan permits such a transfer and if the plan administers the benefit attributed to the transferred funds as if the benefit were that of a plan member with two years membership in the plan.
  • Use the funds to purchase an immediate life annuity or a deferred life annuity in accordance with subsection 60(l) of the Income Tax Act, or
  • Transfer the funds to a Life Income Fund (LIF).

Note: Your LRSP assets will not be included in your estate and, therefore, not included in the calculation of your estate’s Probate Fees. 

Designating a person other than my spouse as the beneficiary of my LRSP where no surviving spouse or spouse waives their entitlement

When you designate someone other than your spouse as the beneficiary of your LRSP, your LRSP investments will transfer automatically upon your death to that person. Your LRSP investments are withdrawn from your LRSP and transferred into the name of your beneficiary as non-registered investments. Your beneficiary receives and holds the transferred investments in a taxable environment. The LRSP assets cannot be transferred into your beneficiary’s registered account.

Your estate must include the value of your LRSP assets in your Date of Death Income Tax Return and your estate is responsible for any resulting income tax payable.

The financial institution that administers your LRSP will transfer your LRSP assets to the designated beneficiary and issue a T4RSP (Box 34) Income Tax Information slip, for the dollar value of your LRSP, as at the date of death, which your estate’s legal representative will include in your Date of Death Taxable Income.                             

Because your LRSP assets are withdrawn and transferred directly to your designated beneficiary, they are not included as an asset of your estate and no Probate Fees are paid.

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