New Creditor Protection for Registered Funds

By: Nancy Graham

During times of uncertainty, it’s important to make sure that your assets are protected against unforeseen events, including personal financial problems. As of July 8, 2008, the federal government has implemented changes to the bankruptcy laws that will protect assets held within RRSPs of all types.

Assets held in employer sponsored pension plans have always been fully protected against creditors. However, with RRSPs, the insurance industry has had the edge for many years when it comes to creditor protection. In the event of financial difficulties, assets held in segregated funds and insurance-based RRSPs and RRIFs are protected from creditor claims. Similarly, if an investor dies holding insurance-based investments, creditors of the estate may be prevented from seizing these assets, as long as the proper beneficiaries have been named. Here, legislation differs from province to province. In Ontario, the beneficiary must be a spouse, common law partner, child, grandchild or parent of the plan holder in order for creditor protection to apply. In Quebec, the class of specified family members is wider, including all ascendants and descendants of the owner of the plan.

Non-insurance-based RRSPs and RRIFs have had limited creditor protection in Ontario, and virtually none in Quebec. In Ontario, a case decided by the Ontario Court of Appeal in June 2004 established that, where the holder of a non-insurance retirement savings plan has designated a beneficiary to receive the proceeds of the plan on the holder’s death, the proceeds do not form part of the estate and are therefore protected from the holder’s creditors1.

Given this uneven background, the federal government has taken steps to level the playing field and increase the protection offered to non-insured retirement savings plans. Federal Bill C-12, which came into force on July 8, 2008, is designed to address this issue, along with many others. Under its provisions, bankruptcy protection is now extended to all RRSPs and RRIFs, whether insurancebased or not, except for funds contributed to a registered plan within 12 months of the date of bankruptcy.

This legislation provides an important layer of protection for registered plan holders who choose not to invest their retirement funds in insured products. We are happy to see the new provisions come into effect.

1 Amherst Crane Rentals Limited v. Perring, Ontario Court of Appeal, June 16, 2004.