No spousal rollover where beneficiaries assign rather than disclaim RRSP

By Doug Carroll | June 23 2015 01:27PM
At issue

When a person dies, RRSP holdings are generally brought into income in the deceased’s terminal tax year. However, where there is a beneficiary designation to a spouse (or certain dependents), a tax-deferred refund of premiums enables a rollover to the recipient’s RRSP.

Alternatively, the RRSP may be paid into the estate if there is no valid designation in place, or if the estate itself is named as beneficiary. Either way, it is possible to make a joint election with the estate to effect a similar rollover, assuming the spouse or other qualified beneficiary has sufficient entitlement in the estate.

IT-500R Registered Retirement Savings Plans - Death of an Annuitant (Archived)

This interpretation bulletin (now archived) includes CRA’s past guidance on dealing with RRSP rollovers. (Such bulletins are administrative only, and specifically are not binding legal authorities.)

It includes reference to RRSP joint elections between an estate and a spouse, and the potential to use them when other beneficiaries have disclaimed their interests in an estate. This requires that the spouse’s estate entitlement is at least the value of the RRSP, and is not available if the spouse is only entitled to a portion of the RRSP or if under an intestacy the spouse only receives specific assets other than the RRSP.

There is no discussion of the effect of a named beneficiary of an RRSP disclaiming such interest.

Estate of the late John Arthur Murphy v. Her Majesty the Queen, 2015 TCC 8

John Arthur Murphy died in Nova Scotia in 2009. Despite owning a home, farm property, forest properties, rental properties, cottages and livestock, he had no Will – His estate was an intestacy.

Mr. Murphy’s heirs were his spouse Barbara DeMarsh and three adult children from a previous marriage (“the Murphys”). There were ebbs and flows in the dispute that followed, including claims under matrimonial and intestacy law. Eventually a Consent Order was filed with the court in May 2011, providing (among other matters) that the Murphys take all necessary steps to “release, convey and transfer to and in favor of [Ms. DeMarsh] any and all interests that they may have in” an RRSP worth $237,026, on which they had been the named beneficiaries.

The particular RRSP had been reported in Mr. Murphy’s terminal tax return, filed in April 2010. To give effect to the agreement and enable a rollover to an RRSP with Ms. DeMarsh as annuitant, the estate requested a T1 adjustment in August 2011.

The CRA denied the request, leading to the present appeal in which the estate argued that the Consent Order had the effect of indefeasibly vesting the subject RRSP in Ms. DeMarsh retroactive to the time of Mr. Murphy’s death.

The judge disagreed. A disclaimer is a refusal to accept a gift, after which the disclaiming party has no right to direct who is to receive the gift. In this case, the Murphys did not disclaim their interest in the subject RRSP, but rather they settled the litigation by transferring their interest in the RRSP to Ms. DeMarsh. In the judge’s view, the settlement “is not a disclaimer but an assignment.”

The RRSP proceeds remained as income to the estate, with no refund of premium allowed to roll over to an RRSP for Ms. DeMarsh.

Practice points
  1. Mr. Murphy’s lack of a Will (and the resulting intestacy) contributed to uncertainty and delay generally, and arguably factored into the substance of the outcome.
  2. The settlement dealt with assets and issues well beyond the subject RRSP, including contingencies like the potential that the T1 adjustment might be denied. While the judgment rested at least in part on the text of the settlement, the chosen words may have been necessary to preserve the broader agreement.
  3. Though not discussed in the case, generally RRSP rollovers must occur by December 31 of the year following death. Had the estate been successful on the core issue, it may still have faced a hurdle on this administrative requirement.