The Scariest RRSP Story

Will you put money into your RSP before the deadline? Are you going to rush over to the bank or your advisor to do that? Then I’ll ask you to remember Jack the pilot’s story as you contribute to your RSP. It will throw you a new curveball and your financial future may not be the same.

Jack was a pilot and had a sizable RSP account. He and his wife Helen were going through a separation. Jack wanted to keep his portfolio intact. He decided to let Helen have their home, and he would keep the investments. Jack signed a separation agreement, and a divorce proceeded uncontested.

Jack later remarried and had several children with his second wife. Jack’s second wife predeceased him and Jack revised his will. He wanted everything to go to his children. Unfortunately, Jack died without revising his designated beneficiary of his RSP.

Jack had invested over $300,000 in his RSP. The tricky part was that it was still designated to his first wife, Helen. Here is the trouble this caused his estate.

Jack left the RSP to his first wife

Helen received the full $300,000 from Jack’s RSP. Unfortunately, this generated a tax liability to his estate of approximately $150,000 for the RSP.

Well, I know you’re asking: isn’t there a tax-free rollover of a RSP to a qualifying spouse? Does this not give Jack a tax deferral if he leaves a RSP to a qualifying spouse?

Yes, but the problem was that Helen was no longer a qualifying spouse. She was Jack’s first wife. Therefore, there was no tax deferral or rollover possible for Jack’s estate.

The worse news is that Jack’s children paid the taxes of $150,000 from his estate. That tax bill left very little for Jack’s children whom he intended to benefit.

The scary part

All of this could have been avoided. All Jack had to do was check the designated beneficiary of his registered plans. Whenever there is a separation, death or divorce you need to revise your designated beneficiaries.

Could Jack have made a new designation in a will? Possibly. But to be a valid designation it is necessary for Jack to make reference to the institution and the RSP account number.

When banks merge or branches close, these designated particulars are changed or are lost. When a bank branch closes, oftentimes paper or electronic records will not always match Jack’s intended beneficiary.

Who is responsible for this RSP mistake?

Only Jack has the right to obtain this information. He must keep it up to date to reflect his estate plan. It is not enough for Jack to make a will. His will must reflect how he owns or has designated his property.

As a lawyer, I do not include any designations for registered plans in any wills. I do this so my clients can cheaply and easily change their designated beneficiary. They do not have to pay a lawyer to change their will. That is the cost benefit of controlling your designated beneficiaries.

The scary part is if you fail to keep the designated beneficiaries up to date.

Then your loved ones may end up with a horror story.

Estate Planning Steps to Take

1. Remember Jack the pilot as you contribute to your RSP.

2. Ensure your RSP holder confirms the name of your designated beneficiary in writing.

3. Make sure your designated assets match your beneficiaries under your will.

About Edward Olkovich

Edward Olkovich (BA, LLB, TEP, C.S.) is a nationally recognized author and estate expert. He is a Toronto estate lawyer and Certified Specialist in Estates and Trusts. Edward has practiced law since 1978 and is the author of Executor Kung Fu. Visit his website,, for more free valuable information.

© Edward Olkovich 2013