In principle, a beneficiary can be liable for the tax to be paid if there is no longer enough money in the estate. This could be the case when an RRSP or RRIF is the primary or sole asset of an estate. However, if an RRSP or RRIF beneficiary is different from the beneficiary of the rest of the estate, it is an important consideration in determining who gets what from an estate.
Does a beneficiary pay taxes? Can this tax be deferred?
If an RRSP or RRIF beneficiary is the spouse or domestic partner of the deceased, or if they are the beneficiary of the deceased’s estate, tax deferral may be possible, gay. This tax deferral can apply if the proceeds are transferred to their own RRSP or RRIF by December 31 of the year following the death of the account holder.
In this case, a T4RSP or T4RIF receipt is instead issued to the eligible spouse, who would claim the income and could also claim an offset in their tax return in order to avoid taxation.
Future withdrawals would have to be taxed over time by the eligible spouse. It does not matter whether the transferring or receiving account is an RRSP or an RRIF. Also, it doesn’t matter if the beneficiary spouse doesn’t have an RRSP or RRIF, as they can open one to receive the transfer.
In addition to the beneficiary of the spouse, a financially dependent minor child or grandchild or a financially dependent mentally or physically disabled child or grandchild can also be deferred.
The imminent deadline for converting RRSP to RRIF
In your case, gay, if you turned 71 this year, you are right that December 31st is an important date. You will need to convert your RRSP to an RRIF or buy a pension from a life insurance company by this deadline as your RRSP will no longer exist after that.
Regardless of whether you are an RRIF beneficiary and the deceased’s spouse, you can transfer the amount to your RRSP or RRIF so the timing of your own account conversion for the purposes of the transfer does not matter.
If you are not the spouse of the deceased and you are not their financially dependent or mentally or physically frail child or grandchild, there is no tax break. Again, the tax would be paid by the executors of the deceased from their estate and the income and taxes would not appear on your tax return.