RDSP at Death in Canada — What Happens to the Plan When the Beneficiary Dies
A 47-year-old Edmonton man with Down syndrome dies unexpectedly. His RDSP, opened by his parents when he was 23 and topped up every year with their personal contributions plus the maximum Canada Disability Savings Grants and Bonds, holds $284,000 at the date of his death. His mother, who is his executor, learns within weeks of his funeral that the plan must be closed by December 31 of the following year, that $61,000 of grants and bonds received over the prior 10 years will be clawed back to the federal government, and that the remaining $223,000 will be paid to his estate as a Disability Assistance Payment — taxable in the estate at the estate's marginal rate, which falls in the upper Alberta-plus-federal brackets because the DAP is large enough to push it there.
The family is not surprised by any of this; their financial planner walked them through the rules when the RDSP was opened. But they had not previously calculated what the after-tax residue would be — about $134,000 after the federal grant clawback and the estate's tax on the DAP. The original family contributions, which were $114,000 over the 24 years the plan was open, are economically returned with growth; the federal grant-and-bond contribution is reversed; the rest of the value is the post-tax growth of the family's own money.
The RDSP's main job is to support a disabled person during their lifetime. The end-of-life mechanics are designed to ensure the federal grant-and-bond subsidies actually went to that purpose, rather than to subsequent generations. For the broader picture of how the RDSP fits into the plan, see our pillar on estate planning in Canada and our companion guide on the Henson trust.
What happens to the RDSP when the beneficiary dies
The RDSP rules are tighter than most other Canadian registered plans on the death of the plan holder. The Income Tax Act and the Canada Disability Savings Regulations set out a structured sequence:[1]
Step 1: The plan continues briefly. Immediately after death, the RDSP can remain open while the executor and the financial institution administering the plan begin the wind-down process. The plan does not have to be closed instantly.
Step 2: The assistance holdback amount is calculated. The AHA is the total of Canada Disability Savings Grants (CDSG) and Canada Disability Savings Bonds (CDSB) deposited into the RDSP during the previous 10 years. This amount is owed back to the federal government on plan closure.[3]
Step 3: The AHA is repaid to the federal government. Before any remaining funds can be paid out to the estate, the AHA is returned to Employment and Social Development Canada. For a long-running plan that has received the maximum annual grants and bonds, this can be a substantial amount — up to the $90,000 lifetime maximum ($70,000 in grants plus $20,000 in bonds), to the extent those subsidies were paid within the preceding 10 years. (The straight annual maximums are $3,500 in grant and $1,000 in bond; reaching the full $90,000 within a single 10-year window depends on the carry-forward rules.)
Step 4: The remaining balance is paid to the estate as a DAP. The Disability Assistance Payment includes contributions, investment growth on contributions, and growth on the now-clawed-back grants and bonds. The portion representing original contributions is generally tax-free (the contributions were made with after-tax money); the portion representing growth and the residual portion of grants/bonds not subject to the AHA clawback is taxable to the estate.[3]
Step 5: The plan is closed. The plan must be closed by December 31 of the year following the year of death. The plan trustee (the financial institution) handles the formal closure once the AHA repayment and the DAP have been processed.
The DAP and the tax in the estate
Disability Assistance Payments paid to the beneficiary's estate are taxable as income to the estate in the year received. The estate files a T3 trust return and pays tax on the DAP at the estate's marginal rate.
Two practical considerations:
-
The estate's Graduated Rate Estate (GRE) status helps. During the first 36 months of estate administration, the estate is taxed at graduated rates (the same brackets that apply to individuals). The first ~$55,000 of estate taxable income in 2026 sits in the lowest two federal brackets at relatively low combined rates. Splitting the DAP into multiple payments across two or three tax years can keep the income inside lower brackets, reducing total tax.
-
The estate cannot pay the DAP to a beneficiary as a tax-deferred rollover. Unlike RRSPs (which have spousal rollover and the RDSP rollover for disabled children), the RDSP's outflow at the beneficiary's death is a taxable event with no rollover available. The estate is the terminal recipient of the after-AHA balance.
The size of the tax bill depends on the size of the DAP and the estate's other income.
The rollover from a parent's RRSP
The Income Tax Act contains a much less well-known provision that runs in the opposite direction — the proceeds of a deceased parent's or grandparent's RRSP, RRIF, RPP, SPP, or PRPP can be rolled into the disabled child's or grandchild's RDSP, tax-deferred, under paragraph 60(m).[2]
Three requirements must be met:
-
The child or grandchild must be the deceased's "eligible individual." They must have been financially dependent on the deceased at the date of death by reason of an impairment in physical or mental functions. Financial dependence is generally established by showing that the child's own income for the year of the deceased's death was below the indexed threshold (commonly cited around $26,000 in recent years; the precise figure is set annually).
-
The eligible individual must be the RDSP beneficiary. The rollover goes into the disabled child's or grandchild's RDSP, not into a new RDSP set up for the purpose. If the disabled person does not already have an RDSP, one can be opened.
-
The rollover must respect the RDSP lifetime contribution limit. The lifetime maximum personal contribution into an RDSP is $200,000. A rollover under 60(m) counts toward this limit. The rollover proceeds are not eligible for the CDSG matching grants (which only match the first $1,500 of personal contributions per year up to lifetime limits) — but they are added to the plan tax-deferred and grow tax-deferred until they are eventually paid out.
The mechanics are documented on CRA Form RC4625.[4] The form must be signed by the executor of the deceased's estate and the legal representative of the RDSP beneficiary, then filed with the financial institution administering the RDSP.
What the rollover changes about the tax picture
Without the 60(m) rollover, the deceased parent's RRSP would be deemed disposed at death — full fair market value included as income on the final return — and the resulting tax would be paid out of the estate before any residue passed to beneficiaries.
With the rollover, the deceased's final return reports the RRSP value as income but claims a corresponding offsetting deduction for the amount rolled into the disabled child's RDSP. The tax on the rolled-over amount is deferred until the RDSP itself eventually pays out.
For a Canadian family with a substantial RRSP and a financially dependent disabled adult child, this is one of the largest single tax-deferral moves available in the death-time planning toolkit. The rollover is capped at the RDSP's $200,000 lifetime contribution limit (less any prior contributions), so rolling the maximum $200,000 can avoid roughly $100,000 of immediate tax on the parent's final return, with the eventual tax owed only when the child draws DAPs (typically over decades).
Practical sequence for families
For a Canadian family with a disabled adult child and meaningful registered savings, the planning has two components:
During the parent's life. Ensure the disabled child is the beneficiary of an RDSP (open one if not). Confirm the child's DTC eligibility is current. Establish that the child is "financially dependent" on the parent — this is a question of fact, not a designation, but the parent's tax returns and the child's tax returns should reflect the dependency relationship over time.
At the parent's death. The executor coordinates with the financial institution administering the RDSP and the institution administering the parent's RRSP or RRIF. Form RC4625 is completed and signed. The funds move from the deceased's plan into the disabled child's RDSP, tax-deferred. The executor reports the income inclusion and the offsetting deduction on the parent's final T1.
At the child's eventual death. The RDSP closes per the December-31-of-following-year rule, the AHA is clawed back to Ottawa, and the residue passes to the child's estate as a taxable DAP. The cycle of tax deferral ends here.
What we focus on at It's Simple Will
The RDSP itself is opened and administered at a participating financial institution — banks, credit unions, and several investment dealers offer RDSPs. The 60(m) rollover requires coordination at the parent's death and is generally handled by the executor working with the institutions and the family's accountant. The Will Creator covers the will-side decisions — naming an executor competent to handle the rollover paperwork, the testamentary trust for the disabled child if one is desired (often combining a Henson structure with a QDT election). The Life Discovery Kit captures the disabled child's RDSP institution, the parent's RRSP institution, and the relationship between them so the executor knows the sequence at death. Our companion guide on the Henson trust covers the will-side trust structure for the broader disability planning.
Citations & sources
- [1]Income Tax Act, RSC 1985, c 1 (5th Supp), s 146.4 — RDSPs — Justice Laws Website, Government of Canada
- [2]Income Tax Act, RSC 1985, c 1 (5th Supp), s 60(m) — RDSP rollover from deceased RRSP/RRIF — Justice Laws Website, Government of Canada
- [3]Cessation of disability or death of a beneficiary — Canada Revenue Agency — Canada Revenue Agency
- [4]Form RC4625 Rollover to a Registered Disability Savings Plan (RDSP) Under Paragraph 60(m) — Canada Revenue Agency
- [5]What is a registered disability savings plan (RDSP) — Canada.ca — Canada Revenue Agency
Frequently asked questions
When does an RDSP have to be closed after the beneficiary dies?
The RDSP must be closed and all remaining amounts paid out by December 31 of the year following the calendar year in which the beneficiary dies. For example, if the beneficiary dies in March 2026, the plan must be closed by December 31, 2027. Any payments after the beneficiary's death are called Disability Assistance Payments (DAPs) and are paid to the beneficiary's estate, where they are taxable to the estate.
What is the assistance holdback amount (AHA) and how does the clawback work?
The assistance holdback amount (AHA) is the total of Canada Disability Savings Grants and Canada Disability Savings Bonds paid into the RDSP during the previous 10 years. When the RDSP is closed for any reason — including the beneficiary's death — the AHA must be repaid to the federal government before the remaining funds are paid out. The clawback can be substantial: a plan that received the maximum $90,000 of bonds and grants over the previous decade would see that full amount returned to Ottawa.
Can RDSP money pass tax-free to the beneficiary's children at death?
Generally no. After the beneficiary's death, RDSP balances (after the AHA clawback) are paid to the beneficiary's estate, where they are taxable to the estate as a Disability Assistance Payment. There is no rollover provision for an RDSP at the beneficiary's death analogous to the spousal rollover for RRSPs. RDSPs are specifically designed to support the disabled beneficiary during their lifetime, not to pass wealth to subsequent generations.
What is the RDSP rollover from a deceased parent's RRSP?
Paragraph 60(m) of the Income Tax Act allows the proceeds of a deceased parent's or grandparent's RRSP, RRIF, RPP, PRPP, or SPP to be rolled tax-deferred into a disabled child's or grandchild's RDSP, provided the disabled child was financially dependent on the deceased at the date of death by reason of an impairment in physical or mental functions. The rollover is subject to the RDSP lifetime contribution limit ($200,000) and the eligible-individual rules. CRA Form RC4625 documents the rollover.
Who is "financially dependent" for the RDSP rollover?
The Income Tax Act treats a child or grandchild as financially dependent if they had income for the year of the deceased's death below an indexed threshold (approximately $26,000 in recent years; reviewer should confirm the current threshold against CRA guidance). The threshold is rebuttable in either direction — a child with income above the threshold may still be considered dependent if their actual expenses required parental support, and a child below the threshold may not be considered dependent if they had other sources of support.
Does the RDSP rollover affect the disabled person's other federal disability benefits?
The rollover itself does not affect federal disability benefits such as the Disability Tax Credit. Provincial disability benefits (ODSP in Ontario, AISH in Alberta, PWD in BC, others) are generally not reduced by RDSP balances or RDSP rollovers — most provinces explicitly exempt RDSPs from their benefit-asset-and-income tests. The interaction with provincial benefits is one of the major advantages of the RDSP as a planning vehicle for disabled Canadians.