Upon the death of a RRIF annuitant, any remaining funds are generally paid out to the designated beneficiary. What is the tax implication if the beneficiary is the annuitant's financially dependent adult child (e.g., due to mental/physical infirmity)?

Question: Upon the death of a RRIF annuitant, any remaining funds are generally paid out to the designated beneficiary. What is the tax implication if the beneficiary is the annuitant's financially dependent adult child (e.g., due to mental/physical infirmity)?

Answer options: ✅ The funds are transferred to the dependant's RRSP or RRIF on a tax-deferred basis, or used to purchase an annuity.

• The entire amount is taxable in the hands of the deceased's estate.
• The funds are tax-free because they are for a dependent child.
• The funds are taxable in the dependant's hands in the year of receipt, but at a reduced rate.

Correct answer: The funds are transferred to the dependant's RRSP or RRIF on a tax-deferred basis, or used to purchase an annuity.

Explanation: If the beneficiary is a financially dependent infirm child or grandchild, the RRIF proceeds can be transferred to their RRSP or RRIF or used to purchase an eligible annuity, thereby deferring immediate taxation. This is an exception to the general rule of immediate taxation upon death.