What must a plan holder do if they die before de-registering an RRSP?

When a plan holder dies before de-registering a Registered Retirement Savings Plan (RRSP), the assets in the RRSP generally receive special tax treatment depending on the beneficiary designation. If the beneficiary is not a spouse, common-law partner, or financially dependent child or grandchild, the assets in the RRSP are deemed to be received by the plan holder at the time of death and are subject to taxation.

The estate must report the RRSP's fair market value as income on the plan holder's final tax return, thus the taxation applies to a portion of the assets, depending on the total value and any available deductions or credits. This triggers an income tax obligation for the deceased's estate, meaning that taxes must be paid on the income generated by the RRSP up to the date of death.

In contrast, if the designated beneficiary is a spouse or dependent, there may be options for tax deferral or rollover into a spousal RRSP, allowing for more efficient estate management without immediate tax obligations. The specific circumstances of the beneficiary’s relationship to the deceased and the type of beneficiary designation have a significant impact on tax implications, thus making the response involving payment of income tax on a fraction of the assets in the RRSP correct under specific conditions.