The last annuitant of a trusteed registered retirement income fund (“RRIF”) died in 2018, and that annuitant’s spouse, who was the sole designated beneficiary under the RRIF, died before the distribution of RRIF proceeds, which was made to the spouse’s estate in 2020.
Because no amounts were paid to the designated beneficiary, there was no designated benefit, so that pursuant to s. 146.3(6), the full FMV of all the RRIF property held at the time of the annuitant’s death was included in the income of the annuitant in the year of death, rather than being included in the income of the surviving spouse.
When the annuitant died, the RRIF trust’s tax-exempt status was extended consistently with s. 146.3(6.2) – B and s. 146.3(3.1) until the end of the year immediately following the year of death (i.e., until the end of 2019), with the trust thereafter becoming taxable. However, the RRIF trust may claim a deduction in computing its income for any income earned after such exempt period that is actually paid to a beneficiary of the trust – so that the RRIF trust can fully deduct in computing its 2020 income any income it earned in 2020 that was paid to the spouse’s estate.
The spouse’s estate will include in computing its income for 2020 the amount it received out of the RRIF in 2020 less the portion that is included in the annuitant’s income for 2018. Thus, the appreciation between the date of the annuitant’s death and the distribution date is included in the income of the spouse’s estate for 2020 and the FMV of the RRIF property at the date of the death is included in the annuitant’s income for 2018.