Segregated funds are no tax panacea |
By Allan Norman, MSc, CFP, CIM on June 1, 2026 Estimated reading time: 5 minutes
Segregated funds are no tax panacea
By Allan Norman, MSc, CFP, CIM on June 1, 2026 Estimated reading time: 5 minutes
Could moving your RRIF into segregated funds lower estate taxes? Maybe—but higher fees and other trade-offs could leave your heirs worse off.
I attended a financial planning seminar and the presenter said you’re taxed so high on RRSPs when you die that your kids are only going to get half of it, which I already kind of knew. So, if you put it into these segregated funds, then you don’t pay tax. Should I be doing this? I am a 69-year-old widow, living in Ontario with $840,000 in RRIFs, and 136,000 in a TFSA. I have one daughter and I am a conservative investor spending about $60,000 a year.
Hi Pam, I wonder if you misunderstood the presenter? You are correct: your daughter may lose close to half of the value of your registered retirement income fund (RRIF), but I don’t see reallocating to segregated funds as a winning strategy. This is the kind of thing you want to model out because there are a lot of moving parts here.
When I hear a strategy like the one presented, I think, “What problem is the strategy trying to solve, and will it create other issues?” The obvious problem here is tax on death. In your case, an $840,000 RRIF on death may result in about $400,000 lost to tax. When you die, the total value of your registered retirement savings plan (RRSP) or RRIF is added on top of your other income for the year, and the total is taxable. Tax isn’t a problem for you, but it is a cost to your kids because the tax reduces their inheritance. If you ever speak to someone who is not a fan of RRSPs, it is often because they are thinking of the tax on RRSPs/RRIFs.
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