Saving for your retirement has become an essential part of a complete financial plan. However, your strategy should also consider what happens to your RRSP or RRIF when you pass away.
Upon your death, where a surviving spouse is a named beneficiary, these registered savings are transferred to his or her name without tax liability.
However, when there is no surviving spouse (or dependent child) listed as the beneficiary, these accounts are deemed to be disposed of and 100% of the remaining balance is added to your income in the year of death.
The tax liability resulting from this disposition will be borne by your estate on your final income tax return. If other income was earned in the year of death, this could easily be subject to tax at the highest marginal tax rate.
Because you are taxed on the income you draw from your retirement funds, gifting them while you are still alive is also an effective way to reduce your taxes owing. And you get the satisfaction of helping students and researchers immediately.