Calgary widow forced to pay $270,000 to CRA over beneficiary oversight

Sometimes when I meet with clients to prepare their wills, they tell me they are not really sure who they have named as beneficiaries on certain assets. Specifically, they are not always positive who has been named on their RRSP or RRIF. Does it matter? Oh, yes it does, and this story will show you exactly why it's so important.

Jim Phillips passed away, leaving his widow, Donna, surviving him. Jim was 74 when he passed away. At age 71 he had switched his RRSP to a RRIF, as we are required by law to do. Jim had named Donna as the beneficiary of his RRSP but somehow the beneficiary designation did not make it onto the RRIF.

This means that when Jim passed away, his RRIF was fully taxable. If he had named Donna as the beneficiary, there would have been no tax payable, as the tax would have been deferred until Donna passed away or withdrew the money. The tax was $270,000 and it was on Donna as the recipient of Jim's estate to pay it.

To read more about this story from CTV news, click here.

Donna believes the lack of beneficiary designation on the RRIF to be a mistake, and it seems she is probably right. There is no logical reason that Jim would have discontinued that designation. At this point, it isn't clear whether the financial advisor who switched over the RRSP made a mistake, or how the error occurred.

What is clear is that each and every one of us should check our own beneficiary designations on RRSPs, RRIFs, TFSAs, LIRAs and life insurance policies to make sure we don't leave our families with financial problems to deal with after our passing.