Are RRSPs and RRIFs in the estate when both spouses have died?

It's important to think through the ownership of your assets to understand what will happen to them when you pass away. If you're married, you also need to understand how your assets affect your spouse, and vice versa. There are a lot of detailed rules that must all work together. Today a reader asked me for clarification about what happens to RRSPs and RRIFs when both spouses have passed away. Here is  his question and my response:

"Is this correct? Probate is paid on property (House) Bank Accounts, GIC, Stocks. But RRSP or RRIF are not included in probate. I’m saying when both spouses are dead."

Part of your statement is correct and part of it is not.  

When one partner in a marriage passes away, any assets that are held jointly with the surviving spouse pass to that surviving spouse. Any assets that name the surviving spouse as the designated beneficiary also pass to the surviving spouse. This is by far the most common arrangement for married couples because it works well most of the time.

You are asking about what happens when that second spouse, the one who outlived the other, now passes away as well.  

All of the assets that were owned by the second spouse will now become that second spouse's estate. If the assets you mention are present, then the executor will have to apply for probate to deal with those assets. All assets are listed on an inventory of the estate, and this inventory is used to calculate the probate fee.

You are correct that the house, bank accounts, GICs, and stocks will be included in the probate inventory and will increase the value of the estate. This in turn will cause a higher probate fee to be charged.

However, you are incorrect about the RRSP or RRIF. If a husband leaves his RRSP to his wife (or vice versa), on the husband's death the RRSP may roll over to the wife and will not pass through his estate. It is not shown in the probate inventory. This means the wife now owns the husband's RRSP as part of her own RRSP. However, when the wife later passes away, the RRSP becomes part of her estate. It is included in the inventory for probate and increases the value of the estate and thereby increases the probate fee. It is taxable, and the tax is paid by the second spouse's estate.

The only way to keep the RRSP or RRIF out of the estate of the second spouse is for that second spouse to change the beneficiary designation to name someone. If the designation is not changed and it still names the first spouse (who in this example is already deceased), the funds will form part of the second spouse's estate.

Some people reading this will make the mental leap straight to the decision to name someone on their RRSPs and RRIFs to keep them out of probate. Please DO NOT do that without talking it over thoroughly with your estate planner or financial advisor, because there is a lot more to consider besides a probate fee.