A crucial part of retirement planning is designating one or more beneficiaries for your Common Wealth plan. You’ll want to consider a number of factors when deciding the individual(s) who will receive the Common Wealth assets in the event of your death.
After you enroll in Common Wealth, click on your name in the top-right corner of your account dashboard to access the beneficiary designation screens. Select “Beneficiaries” in the drop-down menu. The system will then provide the option to set beneficiaries for each account you have at Common Wealth. You can name one or more beneficiary(ies) for each regulatory account (TFSA, RRSP, RRIF, DCPP, and/or LIRA/LIF) – your beneficiaries do not have to be the same person(s) for all accounts, although DCPP, LIRA and LIF regulations require your spouse to be the designated beneficiary unless they waive their entitlement
Subject to applicable laws, by designating a beneficiary for each of your regulatory accounts, assets held in these accounts will be paid directly to the named individual(s) upon your death and will not form part of your estate. If any of your beneficiaries are minor children, you can also name a trustee your child(ren)’s entitlements. If you do not designate beneficiaries for your TFSA, RRSP and/or RRIF accounts, assets held in these accounts will be paid into your estate upon your death and will be paid out in accordance with your will, or as otherwise required under applicable laws.
If you have a spouse
In this article, the term “spouse” includes a common-law partner, and each has the meaning recognized in the Income Tax Act (Canada) (the “ITA”) and provincial pension regulations.
If you want your spouse to receive some or all of the assets held in Common Wealth upon your death, you can designate your spouse as “beneficiary” under some or all of your accounts. Under the ITA, there are different rules and terminology used relating to designating a spouse under a RRSP, TFSA or RRIF. Under provincial regulations, your spouse at your date of death is entitled to the value of your DCPP or LIRA/LIF accounts.
DCPP and LIRA/LIF – spousal beneficiary
For DCPP or LIRA/LIF accounts (considered ‘pension assets’), provincial laws require your spouse to be the designated beneficiary for these account types. This is automatic unless your spouse has waived their right to survivor benefits using a prescribed form specific to the province governing your pension account(s). Contact Common Wealth at support@commonwealthretirement.com should you need to access these forms.
Your spouse at your date of death must be your current spouse with whom you are co-habiting. The value of these account types can generally be transferred directly to your spouse’s RRSP or RRIF on a tax-deferred basis. These funds will remain locked-in and withdrawals by your spouse will be restricted except in limited circumstances. For more information on locked-in accounts, refer to this post : https://www.commonwealthretirement.com/consolidating-post-employment-pension-funds
RRSP – spousal beneficiary
If you designate your spouse as the beneficiary of your RRSP, the ITA permits the value of the RRSP account on your death to be “rolled-over” to your spouse’s RRSP on a non-taxable basis. Technically, the value of your RRSP account at the time of your death is included in your surviving spouse’s income, but your surviving spouse then claims a tax deduction to fully offset this income. Taxes remain deferred while the money is in your surviving spouse’s RRSP.
TFSA – successor holder and/or RRIF – successor annuitant
Under the ITA, you may designate your spouse as a successor holder for the TFSA, and a successor annuitant for your RRIF/LIF accounts in Common Wealth, in which case your spouse effectively “takes over” your account assets upon your death.
Options for your spouse
If your spouse is named as sole beneficiary for your RRSP, LIRA and/or DCPP, successor holder (TFSA) or successor annuitant (RRIF/LIF), under Common Wealth, following your death, your spouse can then choose from the following options:
- Join Common Wealth and have the assets continue in their own Common Wealth account
- Transfer the assets to their RRSP/LIRA, TFSA and RRIF/LIF within their Common Wealth account if they are already a member
- Transfer the assets to another RRSP/LIRA, TFSA and RRIF/LIF at a financial institution outside Common Wealth
Your beneficiary, successor holder and/or successor annuitant designations will not automatically be revoked or updated in the event of a change in your spousal status. If you have a change in spousal status, you may wish to consult a lawyer, accountant or financial advisor to determine what changes, if any, should be made to your designations under Common Wealth.
Non-spouse beneficiaries
There is no direct transfer of funds to another registered product for beneficiaries other than spouses or financially dependent children/ grandchildren. Subject to applicable laws, upon your death, if you designate one or more beneficiaries other than your spouse for your accounts under Common Wealth, or your spouse pre-deceases you or waived their entitlement to pension assets, the designated individuals will be paid the applicable account balance (or portion thereof). Unless you update your designations, if your designated beneficiary/beneficiaries predecease(s) you, payment will be made to the remaining surviving beneficiaries designated for that account and if none, to your estate.
No beneficiaries
If you do not complete the beneficiary designation process for DCPP, LIRA or LIF accounts, your spouse (if any) on the date of death is entitled to the survivor benefits. For all other account types, subject to applicable laws, all of the Common Wealth assets will be paid to your estate (less taxes), for distribution by your executor in accordance with your will.
Revocability
Beneficiary designations for your TFSA, RRIF, and RRSP accounts in Common Wealth are generally revocable, unless considered irrevocable by pension regulations or separation agreements. If you have any questions about irrevocable beneficiaries, please contact us at support@commonwealthretirement.com.
If you wish to change a beneficiary designation, you may do so by completing new Common Wealth beneficiary designations at any time. You should periodically review your beneficiary designations, especially in the event of major life changes such as marriage, divorce, separation, or the birth of children. If you are a Quebec resident or a non-resident of Canada, different rules may apply and you should contact support@commonwealthretirement.com.
Common Wealth is one component of your estate. We recommend that you consult a financial advisor, accountant and/or lawyer to understand how designating a beneficiary under Common Wealth fits into your overall estate planning.
Glossary
To help you navigate the acronyms mentioned in this article, we’ve compiled a glossary for your reference.
DCPP (Defined Contribution Pension Plan): An employer-sponsored pension plan where both the employer and employee (in some cases) make fixed contributions to the employee’s individual account. The retirement benefit depends on the total contributions and investment performance.
ITA (Income Tax Act): The federal legislation in Canada governing taxation, including rules and regulations for registered retirement savings plans and accounts.
LIF (Life Income Fund): A registered account designed to provide retirees with income by converting locked-in retirement savings from a LIRA or pension plan into regular payments. LIFs have minimum and maximum annual withdrawal limits.
LIRA (Locked-In Retirement Account): A registered account that holds pension funds for individuals who have left a pension plan before retirement. Funds are “locked-in” until retirement age, except under specific circumstances.
RRIF (Registered Retirement Income Fund): A registered account used to generate retirement income from savings accumulated in an RRSP. Funds are transferred from an RRSP to an RRIF, and the account holder must withdraw a minimum amount annually.
RRSP (Registered Retirement Savings Plan): A tax-advantaged retirement savings account allowing individuals to contribute pre-tax income, which grows tax-deferred until withdrawal during retirement.
TFSA (Tax-Free Savings Account): A registered account that allows individuals to earn investment income tax-free. Contributions are made with after-tax dollars, and both contributions and earnings can be withdrawn tax-free.
Locked-In Accounts: Accounts like LIRA and LIF where funds are “locked-in” and cannot be withdrawn in a lump sum before retirement, except under certain conditions. These accounts typically hold pension funds transferred when leaving an employer-sponsored pension plan.
Successor Holder: In the context of a TFSA, a successor holder is the spouse or common-law partner who becomes the new holder of the account upon the original holder’s death, maintaining the account’s tax-free status.
Successor Annuitant: For RRIF and LIF accounts, a successor annuitant is the spouse or common-law partner who continues to receive payments from the account after the original holder’s death, maintaining the account’s tax-deferred status.
