The RRIF Goes to One Child. The Tax Bill Goes to Everyone Else.

Why a named beneficiary on an RRSP or RRIF can quietly rewrite your will, and what to do about it before your estate has to.

Here is a situation we see in estate files more often than most families would expect. A parent dies with a sizeable RRIF. Years earlier, at the bank, they named one child as beneficiary on the plan. The will, signed later, divides "everything" equally among the children.

The bank pays the RRIF to the named child, in full, usually within a few weeks. No tax is withheld. Several months later, the executor files the final return and discovers that the entire value of that RRIF is taxable on it. The tax is the estate’s to pay. The money is not in the estate.

Nobody did anything wrong. The bank followed the contract. The child received what was designated. The executor is following the law. And yet the result can be badly out of line with what the parent intended. This is one of the most common, and most avoidable, estate imbalances in Canadian planning.

How the payout actually works

When the holder of an RRSP or RRIF dies, the Income Tax Act treats them as having received the full fair market value of the plan immediately before death. That amount goes onto the deceased’s final T1 return, stacked on top of everything else that year, and is often taxed at or near the top marginal rate.

Where a beneficiary is named in the plan, the financial institution pays the proceeds directly to that person. The asset passes outside the will and outside probate. The institution issues a slip reporting the date-of-death value in the deceased’s name, and a separate slip to the beneficiary only for any growth earned after death.

The key point: the institution generally does not withhold income tax on a death payout, whether it is paid to the estate or to a named beneficiary. The main exception involves non-residents. So the beneficiary receives the gross amount, and the tax liability stays with the deceased’s final return.

There is one important carve-out. If a surviving spouse or common-law partner is the beneficiary and the funds move to their own RRSP or RRIF, the tax is deferred until the survivor withdraws the money or dies. Certain financially dependent children and grandchildren also have limited rollover options. For everyone else, including adult children, siblings and friends, the full value is taxable in the year of death.

Why the bank doesn’t hold back the tax

Executors are often frustrated that the bank "let the money go" without covering the tax. But from the institution’s side, the logic is straightforward. The tax is not a tax on the payment; it is a tax on the deceased, calculated on a return the bank has nothing to do with. The bank cannot know the deceased’s other income, deductions, credits or final rate. Its obligation is contractual: pay the person named.

That means the protection families assume exists, that someone will set aside the tax before the money moves, generally does not exist. If it is going to happen, it has to be designed in advance.

What the mismatch looks like in practice

Consider a widowed New Brunswick parent with two adult children. The estate includes a home and investments worth $400,000, plus a $400,000 RRIF. The will splits the estate equally. The son, however, is the named beneficiary on the RRIF from a form signed a decade ago.

The bank pays the son $400,000. The full $400,000 is income on the final return. At New Brunswick’s top combined marginal rate of 52.5% for 2026, that is $210,000 of tax. It is paid from the only money the executor controls: the $400,000 in the estate. What remains, $190,000, is split equally.

An "equal" will has produced a better-than-five-to-one result. The daughter has, in effect, funded half of a $210,000 tax bill on an asset she never received. The example applies the top rate to the full RRIF for simplicity; the deceased’s other income and the graduated brackets will move the exact figure, but with a plan this size most of it is taxed at or near the top rate, and the gap is real.

When the estate can’t cover the bill

Now remove most of the other estate assets. If the estate cannot pay the tax, the Canada Revenue Agency has a direct remedy. Section 160.2 of the Income Tax Act makes the person who received the RRSP or RRIF proceeds jointly and severally liable with the deceased for the tax attributable to the plan.

In practice, CRA usually pursues the estate first. The law does not require it to. The Tax Court has upheld assessments against a sibling who received RRSP proceeds directly, years after the funds were spent. A named beneficiary who treats the payout as theirs, free and clear, may receive an assessment they did not see coming.

The executor’s exposure

The executor sits in the middle. They are responsible for filing the final return and paying the tax, and an executor who distributes estate property before obtaining a CRA clearance certificate can be held personally liable for unpaid amounts. When the largest asset in the picture never passed through their hands, the risk of distributing too early, or of family conflict over who should bear the tax, rises sharply.

Where these situations usually start

•Old designations, newer wills. A beneficiary form signed years ago at the branch is rarely revisited when the will is updated. In New Brunswick, the Retirement Plan Beneficiaries Act allows a designation in either the plan or the will, and the interaction between the two can produce results nobody intended.

•The RRSP-to-RRIF conversion. Converting a plan, or moving it to another institution, can create a new contract. A designation does not always carry over, and the plan may default to the estate, or keep a designation the owner forgot about.

•Naming one child "to keep things simple." Often the child who lives closest or helps with banking. The intent is convenience; the tax result is a gift that the other beneficiaries partly pay for.

•Blended families. A plan designated to children of a first marriage, with the estate left to a second spouse, can leave the surviving spouse carrying the tax on assets that went elsewhere.

•Beneficiary-executors. When the named beneficiary is also the executor, the conflict becomes personal, and the other beneficiaries are more likely to question every decision.

The ANR approach: get the sequence right first

At ANR, estate work follows our Control–Stability–Focus Framework. The framework does not replace strategy; it is what allows the right strategy to work. For registered plans, the sequence matters because the most sophisticated drawdown plan in the world does not help if the designations underneath it point in the wrong direction.

1. Control: know where every dollar goes, and who pays its tax

We start by mapping every registered plan, its current designation, and where it sits against the will. The question is not only "who receives this asset?" but "who pays the tax on it, and is that the person you would choose?" Many owners have never seen these two answers side by side.

2. Stability: align the benefit with the burden

Estate stability comes before any wealth architecture. Once the picture is clear, there are several ways to make the outcome match the intention:

•Spousal designation where appropriate, to use the tax-deferred rollover.

•Naming the estate so the plan bears its own tax and passes under the will, accepting probate on that value.

•Equalization and tax-allocation clauses in the will, drafted with your lawyer, that account for designated assets and who bears their tax.

•Insurance to fund the tax so the RRIF can pass intact without draining the rest of the estate.

•Documented intentions so that a named beneficiary understands, while you are alive, what is expected of them.

Each option has trade-offs in probate, creditor exposure, timing and family dynamics. The right answer depends on the family, not on a rule of thumb.

3. Focus: then build the long-term plan

With the estate stable, attention can move to the strategy that actually builds and preserves wealth: planned RRIF drawdowns in lower-rate years, coordination with corporate and investment assets, and charitable planning where it fits. For business owners, this is where registered plans are integrated into the broader picture alongside the corporation, rather than managed in isolation at the bank.

If you are an executor right now

If you are administering an estate where a registered plan has already been paid to a named beneficiary, a few steps protect everyone, including you:

1. Confirm each plan’s date-of-death value and the slips the institution will issue, before calculating what the estate can distribute.

2. Estimate the final-return tax early, including the registered plan income, and hold back enough to cover it.

3. Let the named beneficiary know, in writing, that the tax on the plan is being paid by the estate and that the law can make them liable if the estate cannot pay.

4. If the plan lost value after death and is fully paid out by the end of the following year, review whether the post-death decline can reduce the income reported on the final return.

5. Do not make a final distribution until a CRA clearance certificate has been obtained.

6. Get advice before agreeing to any arrangement where the beneficiary contributes to the tax, so it is documented properly.

Frequently asked questions

Does the bank withhold tax when an RRSP or RRIF is paid to a named beneficiary on death?

Generally, no. Canadian financial institutions do not withhold income tax when paying RRSP or RRIF proceeds on death, whether to a named beneficiary or the estate, with limited exceptions for non-residents. The beneficiary receives the gross amount, and the tax is assessed on the deceased’s final return.

Who pays the tax on an RRSP or RRIF left to a named beneficiary?

The deceased’s estate pays it. Unless a spouse or eligible dependant rolls the funds over, the plan’s full value at death is income on the final return. That tax comes from estate assets, which can mean other beneficiaries effectively fund tax on an asset they did not receive.

Can CRA collect the tax from the person who received the RRIF?

Yes. Section 160.2 of the Income Tax Act makes the recipient of RRSP or RRIF proceeds jointly and severally liable with the deceased for the tax on those funds. CRA usually looks to the estate first, but is not legally required to, and has assessed beneficiaries directly.

How can I prevent the tax burden from falling on the wrong beneficiaries?

Review every registered plan designation against your will. Depending on your family, options include a spousal designation, naming the estate, equalization clauses drafted with your lawyer, or insurance to fund the tax. The goal is that whoever receives the plan and whoever bears its tax line up with your intentions.

Make it last. A beneficiary designation takes five minutes to sign and can outweigh a carefully drafted will. If you have not compared your plan designations against your will in the last few years, that review is one of the highest-value hours in estate planning. ANR works with business owners and families across Atlantic Canada to put the right sequence in place, and to coordinate the CPA, legal and wealth advice so it works as one plan.

This article is general information and is not tax, legal or financial advice for any specific situation. Tax figures are illustrative. Speak with your advisors before acting.