Is my RRSP or RRIF protected from creditors in the event of bankruptcy or a judgment against me in favour of my creditors?"
That's a question I am asked a surprising number of times lately. Some of the confusion may lie in the fact that a federal government bill providing such protection was passed by Parliament last December, but has not yet been proclaimed into law. Therefore, such protection is not yet provided federally.
In Manitoba, the Registered Retirement Savings Protection Act took effect last Nov. 1. As the name suggests, it protects all registered accounts from creditors, except against orders under The Family Property Act or Part VI of The Family Maintenance Act.
Another exception is a transfer to a registered plan while the owner is insolvent, as this may be reversed under The Fraudulent Conveyances Act.
Pensions and any money transferred out of pensions into LIRAs, LIFs or LRIFs were already protected from creditors under The Pension Benefits Act. As well, any plans held with life insurance companies (where a specific beneficiary from the immediate family is named) are similarly immune from creditor claims. This insurance provision has been the case across Canada for many years.
For RRSPs and RRIFs, only two other provinces have adopted similar legislation, I believe PEI in 1992 and Saskatchewan in 2003, to provide protection for all RRSPs and RRIFs.
However, this protection will not be universal for all Canadians until the federal government makes it so.
Bill C-12 received Royal Assent last Dec. 12, but has not yet been proclaimed into law. The Senate committee on banking, trade and commerce is reviewing it yet again, for possible revisions.
One possible change, according to an editorial in STEP Inside, March, 2008, Vol. 7, No. 2, the newsletter of the Society of Trust and Estate Practitioners, might be to reinstate a "lock-in" requirement that had been removed from a previous version of the bill.
This was a condition set on the protected assets to prohibit access to the RRSP funds until retirement, after emerging from bankruptcy.
That seems to be an overly onerous burden on planholders, and contrary to the intention of the proposed protection. We will have to see how it all works out.
You can write to the chair of the Senate committee, the Hon. W. David Angus, Q.C, at Senate of Canada, Ottawa, ON, KIA OA4, (postage free) or email anguswd@sen.parl.gc.ca to make representations of your own.
STEP and CALU, among other groups, both continue their efforts to make sure that the new law takes effect, and is not watered down in such a way that would actually erode the current protection provided to insurance plans across the country, under existing provincial laws. We wish them both well.
It's a complicated legislative framework to run a democracy under a federal system. Personally, I wouldn't have it any other way.
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A belated Happy Canada Day -- I neglected to wish you that last week. I hope you had a terrific long weekend and short work week. It's nice to formally recognize and appreciate living in the greatest country in the world. I try to be grateful every day for that.
Happy Independence Day today -- let's party like it's the 4th of July.
Finally, happy 400th birthday to Quebec City -- and I thought I was getting old!
David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc. His column appears Fridays. You can e-mail him at
dchristianson@wellwest.ca
Investment glossary
Advocis - registered trademark of the Financial Advisors Association of Canada
CALU - Conference for Advanced Life Underwriting (a division of Advocis)
LIRA - Locked-In Retirement Account
LIF - Life Income Fund
LRIF - Locked-In Retirement Income Fund
RRSP - Registered Retirement Savings Plan
RRIF - Registered Retirement Income Fund
STEP - Society of Trust and Estate Practitioners
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