Leaving a $350,000 RRSP to a Minor Child in BC: Refund of Premiums, the Public Guardian, and the $94,000 Tax Difference in 2026
Key Takeaways
- 1Understanding leaving a $350,000 rrsp to a minor child in bc: refund of premiums, the public guardian, and the $94,000 tax difference in 2026 is crucial for financial success
- 2Professional guidance can save thousands in taxes and fees
- 3Early planning leads to better outcomes
- 4GTA residents have unique considerations for inheritance planning
- 5Taking action now prevents costly mistakes later
Quick Summary
This article covers 5 key points about key takeaways, providing essential insights for informed decision-making.
Quick Answer
When a $350,000 RRSP is left to a financially dependent 11-year-old child in BC, two very different tax outcomes are possible. Outcome A (Refund of Premiums + annuity to age 18): the child receives the RRSP proceeds under subsection 146(1) of the Income Tax Act, purchases a term-certain annuity paying ~$50,000/year for 7 years, and pays roughly $7,000 in combined federal and BC tax per year — approximately $53,000 total over 7 years. Outcome B (RRSP collapses into the estate): the full $350,000 is included as income on the deceased parent’s terminal T1 return alongside any other income, producing approximately $147,000 in combined tax at BC’s top rates. The difference: approximately $94,000 in tax savings. But the Refund of Premiums route only works if (1) the child qualifies as financially dependent, (2) a term-certain annuity is actually purchased, and (3) the will names a trustee to act on the child’s behalf — otherwise BC’s Public Guardian and Trustee steps in, which adds cost, delay, and loss of family control.
Key Takeaways
- 1The Refund of Premiums under subsection 146(1) of the Income Tax Act allows RRSP proceeds to be taxed in the hands of a financially dependent minor child rather than on the deceased’s terminal return. For a minor child, financial dependency is presumed by CRA unless the child’s income exceeded the basic personal amount (~$16,129 federal in 2026) in the year before death.
- 2A financially dependent minor child can purchase a term-certain annuity to age 18 under paragraph 60(l)(v). For an 11-year-old receiving $350,000, the annuity pays approximately $50,000/year for 7 years. Each payment is taxed in the child’s hands at their low marginal rate — roughly $7,000/year, or ~$53,000 total — compared to ~$147,000 if the RRSP collapses onto the parent’s terminal return.
- 3BC’s Public Guardian and Trustee (PGT) automatically takes custody of a minor’s inherited assets when no trustee is appointed. The PGT charges annual fees (typically 0.7–1.0% of assets under management) and invests conservatively. A testamentary trust in the will naming a specific trustee sidesteps PGT involvement entirely — and gives the trustee authority to purchase the annuity that delivers the tax savings.
- 4The annuity purchase is what creates the tax savings, not the Refund of Premiums designation alone. If the child receives $350,000 as a lump sum with no annuity, the full amount is taxable in the child’s hands in one year — producing approximately $120,000 in tax. The spreading is the strategy.
- 5If the child is already an RESP beneficiary, the annuity income does not affect RESP contribution room or Canada Education Savings Grants. But when RESP Educational Assistance Payments begin (typically at age 18+), they stack on top of remaining annuity income — both are taxable in the child’s hands, which can push the combined income into higher brackets during the overlap year.
- 6BC probate fees on a $350,000 RRSP that flows through the estate: approximately $4,900. Naming the child as designated beneficiary on the RRSP contract bypasses the estate entirely — $0 probate, no creditor claims, and faster payout to the child’s trustee.
Quick Summary
This article covers 6 key points about key takeaways, providing essential insights for informed decision-making.
The Scenario: $350,000 RRSP, Single Parent, One Minor Child in BC
Anita, 44, single mother, lived in Surrey, BC. She dies in May 2026. Her daughter Maya is 11. No spouse, no common-law partner. Anita's primary asset is a $350,000 RRSP. She earned $25,000 in employment income before her death. The question is straightforward: what happens to the RRSP, and how much does Maya actually receive?
The answer depends entirely on one planning decision Anita made (or didn't make) before she died: whether she named Maya as the designated beneficiary on the RRSP contract and whether her will includes a trustee with authority to purchase an annuity.
Outcome A: The RRSP Collapses Into the Estate \u2014 $147,000 in Tax
If Anita did not name Maya (or anyone) as RRSP beneficiary, the full $350,000 is included as income on Anita's terminal T1 return under section 146(8.8) of the Income Tax Act. No rollover, no deferral. The $350,000 stacks on top of her $25,000 of employment income:
| Income source | Amount |
|---|---|
| Employment income (Jan\u2013May 2026) | $25,000 |
| RRSP income inclusion (section 146(8.8)) | $350,000 |
| Total taxable income | $375,000 |
At $375,000 of taxable income, Anita's terminal return crosses every federal and BC provincial bracket. BC's combined top marginal rate of 53.50% (federal 33% + BC provincial 20.50%) applies to all income above approximately $253,000. The estimated combined income tax: approximately $147,000.
On top of that, the RRSP proceeds flow through the estate and attract BC probate fees: approximately $4,900 ($14 per $1,000 on the amount above $50,000). Total cost to the estate from the RRSP alone: roughly $152,000.
Maya inherits approximately $198,000 from the $350,000 RRSP. More than 43% of her mother's retirement savings is consumed by tax and probate.
Why the spousal rollover does not apply here
The spousal rollover under section 60(l) allows an RRSP to transfer tax-free to a surviving spouse's RRSP or RRIF. Anita has no surviving spouse or common-law partner. The rollover is unavailable. The only remaining deferral mechanism for Maya is the Refund of Premiums rule \u2014 which requires financial dependency and an annuity purchase. For a detailed walkthrough of the spousal rollover mechanics, see our inherited RRSP tax rules guide.
Outcome B: Refund of Premiums + Annuity to Age 18 \u2014 $53,000 in Tax
If Anita named Maya as the designated beneficiary on the RRSP contract, the proceeds qualify as a Refund of Premiums under subsection 146(1) of the Income Tax Act. Maya is under 18 and financially dependent on Anita (she had zero income in 2025). The RRSP is paid directly to Maya's trustee \u2014 it never enters the estate.
Step 1: The $350,000 Leaves the Terminal Return
Because the Refund of Premiums applies, the $350,000 is not included on Anita's terminal return. Her terminal return includes only the $25,000 of employment income. Tax on the terminal return: approximately $3,500 \u2014 down from $147,000.
Step 2: The Trustee Purchases a Term-Certain Annuity
Maya's trustee (named in Anita's will) uses the $350,000 to purchase a term-certain annuity under paragraph 60(l)(v) of the Income Tax Act. The annuity pays Maya until she turns 18:
- Term: 7 years (age 11 to age 18)
- Annual payment: approximately $50,000
- Maya claims a paragraph 60(l) deduction that offsets the $350,000 income inclusion in the year the RRSP is received
Step 3: Annual Tax on Maya's Annuity Income
Each year, Maya receives approximately $50,000 in annuity income. Her tax situation as an 11-to-17-year-old with no other income:
| Tax component | Amount |
|---|---|
| Annuity income | $50,000 |
| Less: federal basic personal amount | (~$16,129) |
| Federal taxable income | ~$33,871 |
| Federal tax (15% lowest bracket) | ~$5,081 |
| BC tax (5.06% on income above BC personal amount) | ~$1,893 |
| Combined annual tax | ~$6,974 |
Over 7 years: approximately $48,800 in total tax on the annuity income. Add the $3,500 tax on Anita's terminal return. Total tax under the Refund of Premiums route: approximately $52,300.
Why the child's low marginal rate is the entire strategy
Maya's $50,000 of annuity income sits entirely in the lowest federal bracket (15%) and BC's lowest bracket (5.06%). Her effective combined rate is roughly 14%. On Anita's terminal return, the same dollars would have been taxed at up to 53.50%. The annuity does not eliminate the tax \u2014 it moves it from a 53.50% environment to a 14% environment. That rate arbitrage, compounded over 7 years of payments, produces the $94,000 saving.
The $94,000 Side-by-Side Comparison
| Outcome A (estate) | Outcome B (annuity) | |
|---|---|---|
| Income tax on RRSP | ~$147,000 | ~$52,300 |
| BC probate fees on RRSP | ~$4,900 | $0 |
| Total cost | ~$151,900 | ~$52,300 |
| Net RRSP value to Maya | ~$198,000 | ~$298,000 |
| Tax savings | ~$99,600 (income tax + probate) |
The income tax difference alone is approximately $94,000. Add the $4,900 probate savings from bypassing the estate, and the total benefit of the Refund of Premiums strategy approaches $100,000 on a $350,000 RRSP.
BC's Public Guardian and Trustee: What Happens When No Trustee Is Named
Here is the part most parents miss. Even if Anita correctly named Maya as RRSP beneficiary, Maya is 11. She has no legal capacity to receive $350,000, enter into an annuity contract, or file a tax return. Someone must act on her behalf.
Under BC's Infants Act and the Wills, Estates and Succession Act (WESA), when a minor inherits assets and the will does not name a trustee for those assets, BC's Public Guardian and Trustee (PGT) steps in as statutory custodian. The PGT holds and manages the funds until Maya turns 19 \u2014 BC's age of majority, which is one year later than most provinces.
What the PGT Does With $350,000
- Charges annual management fees \u2014 typically 0.7\u20131.0% of assets under management. On $350,000 over 8 years (age 11 to 19), that is $20,000\u2013$28,000 in fees.
- Invests conservatively \u2014 the PGT uses a pooled fund with a conservative asset allocation. No flexibility to match the family's risk tolerance or the child's time horizon.
- Requires court orders for non-routine expenditures \u2014 if Maya's guardian needs funds for Maya's education, extracurricular activities, or medical expenses, the guardian must apply to the court. Each application costs $1,000\u2013$3,000 in legal fees and takes weeks.
- May not purchase the annuity \u2014 the PGT's mandate is conservative asset management, not tax optimization. If the PGT does not purchase the term-certain annuity within the allowable timeframe, the Refund of Premiums is taxed as a lump sum in Maya's hands \u2014 and the $94,000 tax savings evaporates.
The PGT risk that destroys the tax strategy
If the PGT takes custody and does not purchase the annuity, the full $350,000 is taxed in Maya's hands in one year. A child with $350,000 of income faces combined federal and BC tax of approximately $120,000 \u2014 worse than the annuity route by $68,000, and only $27,000 better than the estate-collapse scenario. The PGT path is the worst of both worlds: high tax and loss of family control.
The Fix: A Testamentary Trust in the Will
The solution is a testamentary trust clause in Anita's will that:
- Names a specific trustee (and an alternate) to hold and manage RRSP proceeds for Maya
- Explicitly authorizes the trustee to purchase the term-certain annuity under paragraph 60(l)(v) \u2014 some financial institutions require this written authority
- Grants investment and distribution powers so the trustee can manage funds for Maya's benefit without court applications
- Specifies the age of final distribution \u2014 the trust can extend beyond age 19, which many estate lawyers recommend (staggered distributions at 21, 25, and 30 are common)
Cost to set up: $1,500\u2013$3,000 in BC estate lawyer fees. Compare that to the PGT's $20,000\u2013$28,000 in fees over 8 years. The will clause pays for itself before Maya turns 12. For the Ontario equivalent of this guardian problem, see our guide on minor children as estate beneficiaries in Ontario.
The Annuity Mechanics: What $50,000/Year Looks Like for a Child
The term-certain annuity is not a savings account or an investment. It is a contract with a life insurance company or financial institution that pays a fixed amount annually until Maya turns 18. Once purchased, the terms are locked:
| Maya's age | Annuity payment | Approx. annual tax | Net after tax |
|---|---|---|---|
| 11 (year 1) | ~$50,000 | ~$6,974 | ~$43,026 |
| 12 | ~$50,000 | ~$6,974 | ~$43,026 |
| 13 | ~$50,000 | ~$6,974 | ~$43,026 |
| 14 | ~$50,000 | ~$6,974 | ~$43,026 |
| 15 | ~$50,000 | ~$6,974 | ~$43,026 |
| 16 | ~$50,000 | ~$6,974 | ~$43,026 |
| 17 (final year) | ~$50,000 | ~$6,974 | ~$43,026 |
| Total (7 years) | ~$350,000 | ~$48,818 | ~$301,182 |
The trustee files a T1 return on Maya's behalf each year, reporting the annuity income and paying the tax from the annuity payments. The net after-tax amount is held by the trustee for Maya's benefit \u2014 available for education, housing, or whatever the trust terms permit.
The RESP Interaction: What to Watch For
If Anita had set up an RESP for Maya with a subscriber designation, the RESP continues after Anita's death. The RESP itself is a separate registered plan \u2014 Maya's annuity income does not affect RESP contribution room, Canada Education Savings Grants (CESG), or the Canada Learning Bond.
The interaction matters at withdrawal time. When Maya enrolls in post-secondary education and the new subscriber (or estate trustee) begins withdrawing RESP Educational Assistance Payments (EAPs), those EAPs are taxable income in Maya's hands. If Maya turns 18 in September 2033 and starts university that same month, she could receive:
- Final annuity payment: ~$50,000
- RESP EAP for first semester: ~$10,000\u2013$15,000
- Combined income for the year: ~$60,000\u2013$65,000
At $65,000, Maya is no longer in the lowest bracket. Her combined marginal rate jumps to roughly 22\u201328% on the upper portion. The planning fix: delay the first RESP EAP withdrawal until January of the following year, after the final annuity payment has been received and taxed. This keeps each year's income in lower brackets instead of stacking.
What If Maya Is Not Financially Dependent? The Strategy Falls Apart
The Refund of Premiums requires Maya to have been financially dependent on Anita at the time of death. For most 11-year-olds, this is automatic \u2014 CRA presumes dependency if the child's income in the preceding year did not exceed the basic personal amount (approximately $16,129 for 2026).
But edge cases exist:
- Trust income from a prior inheritance: If Maya received a prior inheritance held in a trust that allocated $20,000+ of income to her in 2025, the dependency presumption is rebutted. CRA may deny the Refund of Premiums.
- Child acting income or business income: Unlikely at age 11, but if Maya earned above the basic personal amount from any source, the dependency test becomes a factual question requiring documentation.
If dependency is denied, the $350,000 reverts to Anita's terminal return. The $94,000 savings disappears. Documentation of Maya's financial circumstances at the date of death \u2014 school enrollment records, proof of no employment income, and Anita's financial support records \u2014 is the trustee's best defense against a CRA challenge.
The Disability Exception: An Even Better Outcome
If Maya were financially dependent on Anita due to a mental or physical infirmity, a more generous rule applies. Under paragraph 60(l)(v.1), the Refund of Premiums can be rolled into Maya's own RRSP (if she has contribution room) or into a Registered Disability Savings Plan (RDSP), with no restriction to an annuity-to-18. This effectively matches the spousal rollover \u2014 full deferral until Maya eventually withdraws.
This exception requires a T2201 Disability Tax Credit certificate or equivalent medical documentation. It applies regardless of the child's age and regardless of income level \u2014 the infirmity must be the reason for financial dependency, not merely the child's age.
Three Things Anita Should Have Done
- Named Maya as designated beneficiary on the RRSP contract. Not in the will \u2014 on the RRSP contract itself, through the financial institution. This bypasses probate ($4,900 saved in BC) and ensures the Refund of Premiums applies directly without requiring a joint election under subsection 146(8.1).
- Created a testamentary trust in her will with explicit annuity authority. Named a trustee (her sister, her parents, a professional trustee) and included a clause directing the trustee to purchase the term-certain annuity. Without this, BC's PGT takes custody \u2014 and may not buy the annuity.
- Kept documentation of Maya's financial dependency. School enrollment records, Anita's bank statements showing child-support payments or household expenses, and Maya's nil-income status. This protects the Refund of Premiums claim on audit.
Total cost of these three steps: $1,500\u2013$3,000 for the will (if she didn't already have one) and a 15-minute phone call to the RRSP issuer. The return on that investment: $94,000 in tax savings and $20,000+ in avoided PGT fees. For the Alberta equivalent of this planning, see our guide on leaving a $250,000 RRSP to a minor child in Alberta.
How Canada Taxes Inherited RRSPs: The Broader Framework
Canada does not have a formal inheritance tax or estate tax. It was abolished in 1972. Instead, Canada taxes the deceased's accumulated gains and registered account balances through two mechanisms:
- Deemed disposition under section 70(5): all capital property is treated as sold at fair market value at death, triggering capital gains. In 2026, the first $250,000 of capital gains is included at 50%, and gains above $250,000 are included at 66.67% (two-thirds).
- RRSP/RRIF income inclusion under section 146(8.8): the full balance is included as ordinary income on the terminal return unless a spousal rollover or Refund of Premiums applies.
Provincial probate fees act as a de facto additional estate cost. BC charges $14 per $1,000 above $50,000. Alberta caps probate at $525. Manitoba charges $0. Ontario charges $15 per $1,000 above $50,000. For the full provincial comparison, see our inheritance tax Canada 2026 guide.
Planning for a minor child beneficiary in BC?
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Book a free 15-min call →Frequently Asked Questions
Q:What is a Refund of Premiums and how does it apply to a minor child in BC?
A:A Refund of Premiums is a technical term under subsection 146(1) of the Income Tax Act — it is not a refund of anything. It means that RRSP proceeds paid to a qualifying beneficiary after the annuitant’s death are included in the recipient’s income rather than on the deceased’s terminal T1 return. A financially dependent minor child qualifies. In BC, the child must have been financially dependent on the deceased parent at the time of death. For most minor children, CRA presumes dependency unless the child’s income in the preceding year exceeded the basic personal amount (~$16,129 in 2026). Once the Refund of Premiums applies, the child (or their trustee) can purchase a term-certain annuity to age 18 under paragraph 60(l)(v), which spreads the income over multiple years at the child’s low marginal rates. The annuity is what delivers the tax savings — without it, the full RRSP amount would be taxable in the child’s hands in one year.
Q:What role does BC’s Public Guardian and Trustee play when a minor inherits?
A:Under BC’s Infants Act and the Wills, Estates and Succession Act (WESA), a minor child has no legal capacity to manage inherited property. When a minor inherits more than a nominal amount and the will does not name a trustee, BC’s Public Guardian and Trustee (PGT) steps in as statutory custodian of the funds. The PGT holds the assets until the child reaches age 19 (the age of majority in BC — not 18 as in Alberta or Ontario). The PGT charges management fees, typically around 0.7–1.0% of assets annually, and invests using a conservative pooled fund. The PGT also requires court orders for any non-routine expenditures from the child’s funds. For a $350,000 RRSP, PGT fees over 8 years (age 11 to 19) could total $20,000–$28,000 in fees alone. A testamentary trust naming a family member or professional as trustee bypasses the PGT entirely and gives the trustee flexibility to purchase the annuity, invest appropriately, and make distributions for the child’s needs without court applications.
Q:Does the RRSP bypass probate if the minor child is named as beneficiary in BC?
A:Yes. When a minor child (or a trust for the child) is named as the designated beneficiary on the RRSP contract itself, the RRSP proceeds are paid directly by the financial institution to the child’s trustee. The funds never enter the estate, so they are not subject to BC probate fees ($14 per $1,000 above $50,000) or creditor claims against the estate. On a $350,000 RRSP, the probate savings in BC are approximately $4,900. If the RRSP has no named beneficiary — or names the estate — the $350,000 flows through the estate and is included in the gross estate value for probate fee purposes. The Refund of Premiums income tax treatment can still apply in either case (through a joint election under subsection 146(8.1) when the estate is the beneficiary), but naming the child directly is simpler and avoids probate.
Q:What happens to the annuity payments when the child turns 18 in BC?
A:The term-certain annuity under paragraph 60(l)(v) pays out until the child reaches age 18 — not 19, even though BC’s age of majority is 19. This is a federal Income Tax Act provision that applies uniformly across Canada regardless of provincial age of majority. Once the annuity term ends, payments stop. Any remaining capital in the annuity has been fully distributed over the term. The child receives the final payment in the year they turn 18 and reports it as income on their T1 return for that year. If the child turns 18 mid-year, the annuity payments received that year are taxed alongside any other income (employment, RESP Educational Assistance Payments, investment income). The trustee’s role with respect to the annuity also ends — though if the testamentary trust holds other assets, the trust terms govern when the remaining assets are distributed (which can be age 19, 21, 25, or any age specified in the will).
Q:Can the Refund of Premiums be rolled into the child’s RRSP instead of an annuity?
A:For a non-infirm minor child — no. The term-certain annuity to age 18 is the only deferral mechanism available under paragraph 60(l)(v) for a financially dependent child who does not have a mental or physical infirmity. The child cannot roll the Refund of Premiums into their own RRSP because a minor child typically has no RRSP contribution room (room requires earned income in a prior year, and the contributor must be at least 18 to open an RRSP — though technically a minor can have earned income and contribution room). If the child is financially dependent due to a mental or physical infirmity, a more generous rule under paragraph 60(l)(v.1) applies: the proceeds can be rolled into the child’s own RRSP or RDSP with no age restriction on the annuity term, essentially matching the spousal rollover treatment. This requires a T2201 Disability Tax Credit certificate or equivalent medical documentation.
Q:How does the $350,000 RRSP interact with the child’s existing RESP?
A:The annuity income from the Refund of Premiums does not affect RESP contribution room, Canada Education Savings Grant (CESG) eligibility, or the RESP itself. The RESP is a separate registered plan with its own rules. However, the interaction matters at withdrawal time. When the child enrolls in post-secondary education and begins receiving RESP Educational Assistance Payments (EAPs), those payments are taxable income in the child’s hands. If the child is still receiving annuity payments in the same year (for example, the child turns 18 in September and starts university that same month), the annuity income and the EAP income stack together. On a $50,000 annuity payment plus a $15,000 EAP, the child’s income for that year could be $65,000 — well above the basic personal amount and into a meaningful tax bracket. The planning takeaway: coordinate the timing of RESP withdrawals with the final annuity payments to avoid unnecessary bracket stacking.
Question: What is a Refund of Premiums and how does it apply to a minor child in BC?
Answer: A Refund of Premiums is a technical term under subsection 146(1) of the Income Tax Act — it is not a refund of anything. It means that RRSP proceeds paid to a qualifying beneficiary after the annuitant’s death are included in the recipient’s income rather than on the deceased’s terminal T1 return. A financially dependent minor child qualifies. In BC, the child must have been financially dependent on the deceased parent at the time of death. For most minor children, CRA presumes dependency unless the child’s income in the preceding year exceeded the basic personal amount (~$16,129 in 2026). Once the Refund of Premiums applies, the child (or their trustee) can purchase a term-certain annuity to age 18 under paragraph 60(l)(v), which spreads the income over multiple years at the child’s low marginal rates. The annuity is what delivers the tax savings — without it, the full RRSP amount would be taxable in the child’s hands in one year.
Question: What role does BC’s Public Guardian and Trustee play when a minor inherits?
Answer: Under BC’s Infants Act and the Wills, Estates and Succession Act (WESA), a minor child has no legal capacity to manage inherited property. When a minor inherits more than a nominal amount and the will does not name a trustee, BC’s Public Guardian and Trustee (PGT) steps in as statutory custodian of the funds. The PGT holds the assets until the child reaches age 19 (the age of majority in BC — not 18 as in Alberta or Ontario). The PGT charges management fees, typically around 0.7–1.0% of assets annually, and invests using a conservative pooled fund. The PGT also requires court orders for any non-routine expenditures from the child’s funds. For a $350,000 RRSP, PGT fees over 8 years (age 11 to 19) could total $20,000–$28,000 in fees alone. A testamentary trust naming a family member or professional as trustee bypasses the PGT entirely and gives the trustee flexibility to purchase the annuity, invest appropriately, and make distributions for the child’s needs without court applications.
Question: Does the RRSP bypass probate if the minor child is named as beneficiary in BC?
Answer: Yes. When a minor child (or a trust for the child) is named as the designated beneficiary on the RRSP contract itself, the RRSP proceeds are paid directly by the financial institution to the child’s trustee. The funds never enter the estate, so they are not subject to BC probate fees ($14 per $1,000 above $50,000) or creditor claims against the estate. On a $350,000 RRSP, the probate savings in BC are approximately $4,900. If the RRSP has no named beneficiary — or names the estate — the $350,000 flows through the estate and is included in the gross estate value for probate fee purposes. The Refund of Premiums income tax treatment can still apply in either case (through a joint election under subsection 146(8.1) when the estate is the beneficiary), but naming the child directly is simpler and avoids probate.
Question: What happens to the annuity payments when the child turns 18 in BC?
Answer: The term-certain annuity under paragraph 60(l)(v) pays out until the child reaches age 18 — not 19, even though BC’s age of majority is 19. This is a federal Income Tax Act provision that applies uniformly across Canada regardless of provincial age of majority. Once the annuity term ends, payments stop. Any remaining capital in the annuity has been fully distributed over the term. The child receives the final payment in the year they turn 18 and reports it as income on their T1 return for that year. If the child turns 18 mid-year, the annuity payments received that year are taxed alongside any other income (employment, RESP Educational Assistance Payments, investment income). The trustee’s role with respect to the annuity also ends — though if the testamentary trust holds other assets, the trust terms govern when the remaining assets are distributed (which can be age 19, 21, 25, or any age specified in the will).
Question: Can the Refund of Premiums be rolled into the child’s RRSP instead of an annuity?
Answer: For a non-infirm minor child — no. The term-certain annuity to age 18 is the only deferral mechanism available under paragraph 60(l)(v) for a financially dependent child who does not have a mental or physical infirmity. The child cannot roll the Refund of Premiums into their own RRSP because a minor child typically has no RRSP contribution room (room requires earned income in a prior year, and the contributor must be at least 18 to open an RRSP — though technically a minor can have earned income and contribution room). If the child is financially dependent due to a mental or physical infirmity, a more generous rule under paragraph 60(l)(v.1) applies: the proceeds can be rolled into the child’s own RRSP or RDSP with no age restriction on the annuity term, essentially matching the spousal rollover treatment. This requires a T2201 Disability Tax Credit certificate or equivalent medical documentation.
Question: How does the $350,000 RRSP interact with the child’s existing RESP?
Answer: The annuity income from the Refund of Premiums does not affect RESP contribution room, Canada Education Savings Grant (CESG) eligibility, or the RESP itself. The RESP is a separate registered plan with its own rules. However, the interaction matters at withdrawal time. When the child enrolls in post-secondary education and begins receiving RESP Educational Assistance Payments (EAPs), those payments are taxable income in the child’s hands. If the child is still receiving annuity payments in the same year (for example, the child turns 18 in September and starts university that same month), the annuity income and the EAP income stack together. On a $50,000 annuity payment plus a $15,000 EAP, the child’s income for that year could be $65,000 — well above the basic personal amount and into a meaningful tax bracket. The planning takeaway: coordinate the timing of RESP withdrawals with the final annuity payments to avoid unnecessary bracket stacking.
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