Planning for the Unthinkable: How to Use Your RRSP to Support Your Children

If you're a parent — especially a single parent or someone in a blended family — your RRSP may be one of your largest financial assets. But what happens to it if you pass away while your children are still minors?

Most people don't realize that with some smart planning, your RRSP can support your children and reduce the tax burden on your estate. Here's how.

The Default: A Big Tax Bill

Without any planning, the full value of your RRSP is treated as income on your final tax return after you die. (This assumes you don't roll it over to a spouse or common-law partner, in which case it is tax-deferred.) That can mean a hefty tax bill — up to 50% or more of the account goes to the government instead of your family.

But if you have dependent children or grandchildren under age 18, the tax rules offer two valuable ways to reduce or defer that tax.

Option 1: Use Your RRSP to Buy an Annuity for Your Child

If your child or grandchild is under 18 and financially dependent on you at the time of your death, the RRSP can be used to buy something called a term-certain annuity. That's just a fancy way of saying the money is paid out in regular amounts each year until the child turns 18.

Why this helps:

It spreads out the income, so taxes are lower each year. The child pays the taxes at their marginal tax rate.
It gives the child structured support, instead of a lump sum.

This option is especially helpful for single parents or anyone whose RRSP makes up a big part of their estate that they don't want to roll over to a spouse.

Option 2: Transfer Your RRSP to a Disabled Child's RDSP

If your child is eligible for the Disability Tax Credit (DTC), you may be able to transfer your RRSP into their Registered Disability Savings Plan (RDSP) — without paying taxes at the time of transfer.

What's required:

Your child must have been financially dependent on you.
The transfer must be made within 60 days of your death.
The RDSP must have enough room for the contribution.

This strategy protects the money for long-term use and keeps more of your estate available to support your child's lifelong needs.

Important: Don't Name Your Minor Child as the RRSP Beneficiary

This part is critical: don't name your minor children directly as the beneficiaries of your RRSP.

Why not? Because if the RRSP goes straight to your child, it bypasses your estate — and the executor of your will won't be able to set up the annuity or make the RDSP transfer. That could mean your family misses out on major tax savings.

What to do instead:

Name your estate as the RRSP beneficiary.
In your will, include instructions for how the money should be used to support your child (for example, using an annuity or funding an RDSP).

Yes, this means probate fees will apply — but those are often much lower than the taxes your estate would otherwise pay.

What You Can Do Now

Review your RRSP beneficiary. If you've named a minor child directly, update it to name your estate.
Talk to a lawyer. Your will should clearly explain your wishes and note your child's financial dependency.
Write a letter of wishes. This isn't a legal document, but it helps your executor understand why you made certain decisions.
Inform your executor. Make sure they know what to do with your RRSP and to speak to a tax professional before filing your final return.
Work with your advisor. They can help coordinate with your lawyer and ensure your plan is documented properly.

Why It Matters

For many parents, an RRSP is the first place they start building long-term savings. But without the right planning, a big chunk of it can be lost to taxes — leaving less for the children who need it most.

By taking a few simple steps today, you can make sure your hard-earned savings go where you want: to your kids, in the most tax-smart way possible.