Legislation exists at both the federal and provincial level to protect your investments from creditors. Some offer strong protection, while others provide protection with conditions or limitations.¹
Registered retirement investments
There are some situations where registered money is generally protected.
- Provincial legislation – British Columbia, Alberta, Saskatchewan, Manitoba, Prince Edward Island (P.E.I.), and Newfoundland and Labrador fully protect registered retirement savings plan (RRSP) and registered retirement income fund (RRIF) assets from creditors.
- Pension money – All provinces and jurisdictions provide protection against creditors for money while in a pension plan or when transferred out to a personal locked-in or prescribed plan such as a locked-in retirement account (LIRA) or life income fund (LIF).²
Protection – with limitations and/or conditions
- Bankruptcy – The federal government provides protection to registered disability savings plans (RDSPs), RRSPs, RRIFs, and deferred profit-sharing plans (DPSPs), in the event of bankruptcy only.
Limitations of the bankruptcy legislation:
- Contributions made within 12 months of declaring bankruptcy aren’t protected.³
You must be insolvent to go bankrupt. Just because you’re in default with creditors doesn’t mean you can go bankrupt. In most situations, if you owe less than what you own, you’re not insolvent; therefore, you can’t go bankrupt and, therefore, you could have your RRSPs/RRIFs seized.
- Provincial Insurance Laws and The Quebec Civil Code – Investments held with an insurance company are generally protected from creditors in bankruptcy and non-bankruptcy situations provided the beneficiary designation is irrevocable or a spouse or common-law partner, child, parent, or grandchild of the annuitant in all provinces except Quebec. In Quebec, the contract must qualify as an annuity contract and have a named beneficiary in one of these categories: a married or a civil union spouse (not common-law spouse), ascendants or descendants of the owner, or anyone named as an irrevocable beneficiary.
- Another requirement is that there can’t be a fraudulent conveyance. In other words, the investments can’t have been deposited into an insurance investment merely to avoid existing creditors.
Some provinces, specifically British Columbia and P.E.I., have laws in place to protect RRSPs/RRIFs from creditors of an estate. In Ontario, it has been held (Amherst Crane Rental v Perring) that assets going directly to a named beneficiary are also protected from creditors of the estate.
It’s important to note that when we speak of creditor protection, we’re speaking of protection against the creditors of the assets’ owner or of the owner’s estate.
The funds, once received by a beneficiary, whether in the form of a lump sum or as an income stream, are generally not protected from the creditors of that beneficiary.
Creditor protection on non-registered investments and tax-free savings accounts (TFSAs) is still only available through an insurance company product with the same requirements as described earlier (i.e., that the appropriate beneficiary designation is made and that there’s no fraudulent conveyance involved).
Creditor protection for a registered education savings plan (RESP) is generally not available, even for RESPs with an insurance company. This is because the Income Tax Act (Canada) requires that RESPs be trusteed arrangements and that the RESP trust be the contract beneficiary. However, Alberta legislation now provides protection for assets held in RESPs and where used for post-secondary education purposes.
If you’re in British Columbia, Alberta, Saskatchewan, Manitoba, P.E.I., or Newfoundland and Labrador, or have pension or locked-in plans, the protection available to you for registered retirement plans is very strong. In other situations, there’ll be more limitations. At the federal level, you must be bankrupt. At the provincial level, you must be invested in an insurance company product with an appropriate beneficiary designation and it can’t be a fraudulent conveyance. In Quebec, your registered investment must also qualify as an annuity.
For non-registered investments and TFSAs, the only products available to you for creditor protection are with an insurance company. Except for Alberta, creditor protection isn’t available for RESPs.
1 Under certain circumstances, assets that are otherwise creditor protected may be seizable if there’s a court order to that effect — for example, family maintenance or support payments in case of divorce. 2 Assets transferred from a Quebec regulated pension plan to a LIRA or a LIF are generally creditor protected. However, where assets are transferred from certain Quebec government pension plans to a LIRA or a LIF, and where assets are transferred from a federally regulated pension plan to a locked-in RRSP, a restricted locked-in RRSP, a LIF, or a restricted LIF, creditor protection may not apply. 3 DPSP plans may contain withdrawal restriction provisions that may protect contributions made within 12 months of declaring bankruptcy from creditors.
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