Planning Strategies for RRSPs Left to Dependent Minor Children

By Andrea Thompson

As financial professionals, we know that the treatment of registered assets at death can have significant tax implications—especially for single parents and blended families. One area that often gets overlooked in estate discussions is the opportunity to pass RRSPs to financially dependent minor children in a tax-efficient way.

This is a crucial consideration for clients who are the sole or primary caregivers for minor children or grandchildren, and particularly relevant in cases of non-traditional family arrangements where dependency is clear but legal relationships may be nuanced.

I see this all the time in my practice, so thought it would be important to highlight for those who don't know these options exist.

The Default Outcome: Full Taxation at Death

By default, the value of an RRSP is included in the deceased’s terminal return as fully taxable income, unless a qualifying rollover is applied (say to a spouse or common law partner). For clients with minor dependents, the Income Tax Act offers two valuable planning options that can significantly reduce or defer that tax burden.

Two Key Planning Routes

1. Annuity for Financially Dependent Minor Children

Under subsection 60(l) of the Income Tax Act, if the child or grandchild was financially dependent and under 18 at the time of the RRSP holder’s death, the RRSP proceeds can be used to purchase a term-certain annuity payable until the child turns 18.

Key advantages:

• Spreads income over several years, minimizing marginal tax impact
• Allows for structured financial support aligned with the child’s needs
• Can be administered through a testamentary trust for added control

This is especially meaningful for single parents, whose RRSPs may represent a significant portion of their estate, or blended families where biological and step-children are involved in financial dependency relationships.

2. Tax-Deferred Rollover to an RDSP

If the dependent child is disabled and eligible for the Disability Tax Credit (DTC), the RRSP can be rolled over to their RDSP tax-deferred, preserving capital and minimizing estate erosion.

RDSP rollover criteria:

• The recipient must be a financially dependent child or grandchild
• The transfer must occur within the 60-day post-death window
• The RDSP holder must have unused contribution and lifetime grant room

This option provides long-term security for clients caring for children with lifelong support needs.

Practical Steps for Planners and Advisors

• Review RRSP beneficiary designations: Is a minor child named directly? STOP! Do NOT name the minor child directly on the RRSP if you're relying on this rollover strategy. This gives the executor the flexibility—and the legal authority—to apply the provisions of the Income Tax Act to reduce taxes using either an annuity or RDSP transfer.
  • Why? If a child is named as the RRSP beneficiary, the proceeds bypass the estate, and there’s no opportunity for the executor to structure the payment via annuity or trust.
  • Instead, leave the RRSP to the estate and include instructions in the will on how the funds should be handled. Yes, probate will apply. But this is much less than the final tax bill that a client's estate would have incurred otherwise.
• Collaborate with legal counsel: Does a client's will need to be updated in any way to reflect decisions made around the RRSP? For example:
  • The will should reference the child’s status as a financially dependent minor and outline the intent to use RRSP proceeds to purchase an annuity or transfer to an RDSP (if applicable).
  • A separate letter of wishes can provide the executor with non-binding but practical guidance, such as:
    • Confirmation of the child's dependency
    • The rationale for using an annuity vs. lump sum
    • Instructions to consult with the financial advisor or tax professional before distributing assets
  • Most wills don’t include this level of detail unless prompted—advisors can play a key role here by working alongside estate lawyers.
• Educate clients proactively: Most parents aren’t aware that RRSPs can be used this way.
  • Encourage your client to communicate with the executor in advance. The executor is often a family member or close friend, not a financial expert. Help them by:
    • Holding a joint meeting with the client and their executor to review the estate plan.
    • Documenting the RRSP strategy clearly in your client file.
    • Ensuring the executor knows to work with a tax professional before filing the terminal return.
• Professional Collaboration at Death

At death, the executor will often be working with:

• A lawyer
• A tax preparer/accountant
• A financial advisor

You can support the process by:

• Flagging the minor child’s eligibility for this rollover
• Assisting in valuing the RRSP at death
• Coordinating with the accountant to prepare the necessary CRA forms (like T1090 for the annuity transfer)

Why this is important

For many parents early in their savings journey, the RRSP is typically the vehicle in which wealth begins to accrue. For those who are sole parents or guardians, the impact of full taxation on death can erode a significant portion of a needed inheritance for the support of the child or children.

Without proactive planning and clear instructions, these tax-efficient RRSP strategies are easily missed—resulting in higher taxes and less financial support for the child.

Your role as a planner and/or advisor is key: flag the opportunity, coordinate with the estate lawyer, and document the plan so the executor can confidently carry it out.

Finally, here is a handly checklist for you to use with your clients when exploring this planning strategy.

Happy RRSP planning!