Why Your Will Might Not Control Your RRSP or Life Insurance Policy

It’s RRSP season, and if you’re like many Canadians, you’re thinking about contributions and tax deductions. But there’s something about your RRSP that deserves attention beyond this year’s contribution limit: who you’ve named as your beneficiary.

Here’s what surprises people: your will doesn’t control who receives your RRSP, TFSA, or life insurance proceeds. These assets pass directly to whoever you’ve named on the beneficiary designation form—regardless of what your will says. And if you haven’t reviewed those forms lately, you could be creating a massive problem for your family.

The Unintended Consequence

Let’s look at a real scenario we see too often:

You have three children. Your will divides everything equally among them…fair and square. Years ago, when you opened your RRSP, you named your oldest child as beneficiary, thinking it didn’t really matter since your will said “split everything three ways.”

When you pass away, your oldest receives your $400,000 RRSP directly. Tax-free to them. Your other two children split what’s left in your estate.

But here’s the painful part: your estate—meaning your other two children—gets hit with the entire tax bill on that $400,000 RRSP. At Manitoba’s tax rates, that could be $160,000 or more in taxes owed to the CRA.

One child walks away with $400,000. The other two are left splitting what remains after paying a massive tax bill they didn’t benefit from. This isn’t what you intended, but it’s exactly what happens when beneficiary designations don’t align with your overall estate plan.

Why This Happens

Many people filled out beneficiary forms years ago when opening an RRSP, buying life insurance, or starting anew job with a pension plan. Life changes: you get married, have more children, relationships shift. But those old beneficiary forms? They’re still sitting in a file somewhere, unchanged, quietly controlling who gets what.

What You Need to Know

RRSPs and RRIFs are fully taxable in the year of your death (with exceptions for surviving spouses or financially dependent children). That tax bill is your estate’s responsibility. But the proceeds go directly to your named beneficiary, who receives them tax-free.

If your beneficiary designations don’t account for this, you’re essentially asking some of your children to pay taxes on money their sibling received.

Getting It Right

The solution isn’t complicated, but it requires intentional planning:

Review your beneficiary designations regularly—especially after major life events like marriage, divorce, births, or deaths.

Align your designations with your will. If you want equal distribution, your RRSP beneficiaries should reflect that, or your will needs to account for the imbalance.

Consider naming your estate as beneficiary in some cases, which gives your executor flexibility to distribute assets according to your will (though this approach has tax implications to discuss).

Document your intentions clearly so your executor and family understand your reasoning.

Update everything together. When you update your will, review all beneficiary designations at the same time.

February Is the Perfect Time

You’re already thinking about your RRSP this month. Take an extra 15 minutes to review who you’ve named as beneficiary and whether that still reflects your wishes. It’s one of the simplest but most important aspects of estate planning.

Need help reviewing your beneficiary designations and estate plan? Call us at (204) 925-1900. We’re here to make sure your plan works the way you intend.