We have enough money saved up for our retirement — but should our children be my husband’s RRSP beneficiary instead of me?

But here’s the problem: acting too quickly on what sounds like a simple estate planning move — changing the beneficiary on a Registered Retirement Savings Plan (RRSP) from a spouse to adult children — can trigger serious tax consequences that most families don’t anticipate.

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A hypothetical couple, a real dilemma

Take this hypothetical situation: Linda and Mark are retired and comfortable. Linda is in such a strong financial position that, even if she were on her own, she could cover their living expenses without touching Mark’s RRSP.

Mark has roughly $100,000 in his RRSP — with Linda currently listed as the sole beneficiary.

Because Linda is well-positioned financially, they have begun to wonder: does it make more sense to change the beneficiary to their adult children now? The thinking is simple — cut through the legal process and get money to the kids sooner, with fewer complications down the road.

It’s a well-intentioned idea. But the tax reality for non-spouse RRSP beneficiaries in Canada tells a more complicated story.

The basics on RRSP beneficiaries in Canada

A beneficiary is the person — or persons — you name on a registered account to receive the funds when you die. When it comes to an RRSP, the Canada Revenue Agency (CRA) distinguishes between two types of beneficiaries: qualified and non-qualified.

Naming any beneficiary directly on an RRSP means the account bypasses your estate and the probate process — which saves time and, in most provinces, reduces fees. Note that Québec is an exception: RRSP beneficiary designations generally must be included in a valid will, which could increase estate involvement.

But the real question isn’t only about speed. It’s about taxes.

Why naming a spouse is almost always the better tax move

When a spouse or common-law partner is named as the RRSP beneficiary, CRA rules allow the funds to roll over to the surviving partner’s RRSP or Registered Retirement Income Fund (RRIF) on a tax-deferred basis. No income tax is triggered at the time of transfer. Taxes only come due when the surviving spouse eventually withdraws the funds.

As Mark’s beneficiary, Linda would have maximum flexibility. She could keep growing the RRSP, convert it to a RRIF at age 71 and draw from it on her own schedule, or contribute it to an eligible annuity. The tax deferral remains fully intact.

However, the same flexibility Linda has simply isn’t available when you name adult children as beneficiaries.

What happens when adult children are named instead

If Mark were to name his adult, financially independent children as his RRSP beneficiaries, CRA would treat the full fair market value of the RRSP as income taxable to Mark’s estate — regardless of when the children actually receive the money. This is called a deemed deregistration.

The estate is responsible for paying that tax bill — but here's the catch: the RRSP proceeds flow directly to the children outside the estate, while the estate's other assets must absorb the tax. And here’s a caveat families need to consider: if the estate doesn’t have enough assets to cover the tax, CRA has the authority to go after the beneficiaries themselves for the amount owing. The tax exposure is immediate and, for a $100,000 RRSP, could easily run into tens of thousands of dollars depending on any other income Mark has in the year of death.

A financially dependent child or grandchild — one whose net income in the prior year fell below a CRA threshold (generally the basic personal amount, or the basic personal amount plus the disability amount for disabled children) — may qualify for limited rollover options. A child eligible for the disability tax credit may transfer funds into a Registered Disability Savings Plan (RDSP), deferring tax until withdrawal. Note that financial dependency is assessed on all the facts, not just income alone.

The real-world risk: Don’t underestimate future care costs

There’s another reason to think carefully before removing Linda as beneficiary: retirement doesn’t always go as planned. If Linda becomes ill or incapacitated, the situation will change.

Long-term care (LTC) costs in Canada can be significant, with subsidized nursing home beds ranging from $1,300 to $3,400 a month — and private facilities can exceed $6,600 a month.

In Ontario, the basic co-payment fee for a long-term care home was $2,085.37 each month as of July 2025.

In B.C., publicly funded long-term care costs range between a minimum of $1,507.70 a month and a maximum of $4,142.60 a month as of 2026. Private care costs are higher, between $6,000 and $12,000 monthly, depending on the level of care provided.

Additionally, assisted living can run between $3,500 and $6,000 monthly depending on the province.

For Linda, a single health event — a stroke, fall or dementia diagnosis — could fundamentally change her financial well-being. Keeping Mark’s RRSP directed to Linda preserves a fund she may one day urgently need.