Creditor protection of RRSPs

New federal law protects your RRSPs in the case of bankruptcy

Greetings!

Clients may sometimes wonder what would happen to their RRSPs, RRIFs and other registered plans should they face creditors that are coming after assets. Let me give you a brief summary of the pertinent information [with thanks to Frank Di Pietro, Mackenzie Financial's director of tax and estate planning].

Until recently, there were no laws in Alberta to ensure that registered plans received creditor protection. Effective July 7, 2008, creditor protection is now universally available in all provinces for a bankrupt person's assets held in a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF) or a Deferred Profit Sharing Plan (DPSP).

Note that an individual would have to formally apply for bankruptcy for the protection to apply.

The new law includes a clawback period, which means creditors may still attack and successfully seize any property contributed to an RRSP, RRIF or DPSP within the 12 months preceding the date of bankruptcy. A trustee can also seize a registered plan in bankruptcy within five years of a transfer to the plan, if the client was insolvent at the time of the transfer. Therefore, any attempt to transfer property into a registered plan in anticipation of entering bankruptcy will not provide your clients with protection.

Creditor protection has always applied to Locked-in plans, including the property in LIRAs, LIFs, and LRIFs, since these enjoy the same creditor protection as Registered Pension Plans under their respective provincial and territorial pension legislation.

If you have any questions, please let me know.

Cheers!

Tom

Tom Buck, M. Ed. CFP
Certified Financial Planner
Assante Financial Management Ltd
#600, 1414-8th Street SW
Calgary, AB T2R 1J6
TEL 403.229.0128
FAX 1.866.386.9776