TFSA, RRSP, and RRIF Charitable Beneficiary Designations

When planning to make a gift to a charity as part of an estate plan, consider designating the charity as a beneficiary of a Registered Account.  Registered Accounts include: tax-free savings account (“TFSA”), registered retirement savings plan (“RRSP”) or registered retirement income fund (“RRIF”).  A holder of a Registered Account can designate a charity as a beneficiary of the entire amount of the TFSA/RRSP/RRIF, or alternatively they can include a charity as one of many beneficiaries, specifying the amount or portion of the Registered Account payable to the charity on their passing.

By designating a charity as a beneficiary, a donor can maintain full use of their Registered Accounts during their lifetime, but can be assured that any amounts that remain on their passing will transfer (as per their wishes, either in part or wholly) to the named charity.  This can often result in a sizable donation that the donor may not otherwise have been able to make during their lifetime.

Designating a charity as a beneficiary of Registered Accounts can provide a number of tax benefits to the donor’s estate.  Payments from a Registered Account to a designated beneficiary generally pass outside of a will, which can reduce estate administration tax (commonly referred to as probate fees) and executor fees, which are calculated on the value of the assets in the will.  Further, the designated bequest is a charitable gift and the tax credit generated by the donation of the Registered Accounts can be used to offset the deceased’s tax (or, under proposed tax legislation, the tax of the estate).

For tax purposes, the full amount of the RRSP or RRIF would generally be added to the taxable income of the deceased in the year of their passing, and income tax would be payable on that amount.  The amount of any TFSA on the date of passing would not be taxable (but any income earned after the date of passing would be added to the taxable income of the estate).  The charitable tax credit generated by the gift should eliminate most, if not all, of the tax payable on the inclusion of the Registered Accounts, however, donors should consult their own tax advisors to determine the tax consequences in their personal situations.

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