What Happens to an RDSP When the Beneficiary Dies or Loses DTC Eligibility?

What Is an RDSP? mentions, in one line, that losing DTC eligibility doesn't always mean an RDSP has to close, and doesn't cover death at all. Both deserve a real answer — one because the actual rule changed significantly in recent years, and the other because it's a genuinely different situation from every other RDSP scenario this series has covered.

Losing DTC eligibility: the current rule

Some older explanations of this topic describe a temporary continuity election with a fixed expiry — that was accurate before 2021, but it isn't the rule anymore. Following changes that received royal assent in June 2021, an RDSP no longer has to close just because the beneficiary loses DTC eligibility. The holder gets to choose:

• Keep the plan open, indefinitely. There's no fixed time limit forcing a decision by a certain year, the way there used to be.
• Close the plan. DTC ineligibility remains a valid reason to close an RDSP, if that's what the holder wants to do.

What changes if the plan stays open

Keeping the RDSP open after DTC eligibility ends isn't the same as nothing changing:

• No new contributions can be made. The account can't accept more money while the beneficiary isn't DTC-eligible.
• No new CDSG or CDSB can be paid in. Government matching stops entirely until DTC eligibility is regained.
• Existing grants and bonds don't have to be repaid. This is the part that changed most significantly in 2021 — losing DTC eligibility, by itself, no longer triggers repayment of grant or bond money already in the account.
• Withdrawals can still happen, subject to the same repayment rule that applies to any RDSP withdrawal — covered in full in How to Withdraw Money from an RDSP — which is a separate question from DTC status.

If DTC eligibility is later reinstated, the RDSP can generally resume contributions and grant matching normally, since it was never forced to close. The specific mechanics of resuming activity are worth confirming directly with the RDSP issuer, since administration can vary somewhat account to account.

Death of the beneficiary

This is a fundamentally different situation from DTC loss, and it isn't optional: an RDSP must be closed by the end of the calendar year following the year the beneficiary dies.

How closure actually works

When the RDSP issuer closes the plan following a death, two things happen:

1. The Assistance Holdback Amount (AHA) is repaid to the government. The AHA — the same concept covered in How to Withdraw Money from an RDSP — is the total CDSG and CDSB paid into the plan within the 10 years before closure, less any of that already repaid. Because closing the account means withdrawing its entire balance, this reliably exhausts the full AHA rather than a partial, proportional share the way a smaller everyday withdrawal might.
2. The remaining balance is paid to the beneficiary's estate, as a final Disability Assistance Payment (DAP).

RDSPs can't name a beneficiary for death — a real structural difference

Unlike a TFSA or RRSP, an RDSP can't have a named beneficiary designation for what happens after death. The remaining balance always flows to the estate, with no mechanism to direct it elsewhere or bypass estate administration. That has a concrete consequence: RDSP proceeds always go through probate, the court process that validates a will and authorizes an estate to be settled — unlike a TFSA or RRSP with a named beneficiary, which can pass outside the estate entirely.

How the final payment is taxed

The taxable portion of that final DAP — the grant, bond, and investment growth portion, not the beneficiary's own original contributions, which come out tax-free as already-taxed money — is included in the estate's income for the year the payment is made. A T4A is issued to the estate, not to the deceased beneficiary personally, since the payment happens after death.

This detail matters practically: whoever is administering the estate needs to know a T4A is coming and account for it when filing the estate's return, not the deceased's final personal return.

Why estate documents matter for RDSP planning too

A will and a named executor matter as much for RDSP planning as for any other asset — arguably more, since RDSP proceeds always route through the estate rather than to a named beneficiary the way a TFSA or RRSP allows. Estate Planning 101: Why Every Canadian Adult Needs a Plan covers the core documents involved and why "I'll do it eventually" is a riskier default than it feels — that general advice applies with extra weight to a family with an RDSP in the picture, since probate isn't optional here the way it can sometimes be avoided elsewhere.

A family navigating a beneficiary's death

Marcus held an RDSP as beneficiary, with $85,000 in the account at the time of his death: $30,000 in his own contributions, $20,000 in CDSG and CDSB combined, and $35,000 in investment growth. Of that $20,000 in grants and bonds, $14,000 had been paid into the account within the preceding 10 years — the portion that falls inside the AHA window.

Because Marcus had a valid will naming an executor, the estate — and the RDSP proceeds flowing into it — moved through probate without the added complication of the province deciding how to distribute assets under intestacy rules. Families without that paperwork in place face the same RDSP closure and repayment mechanics, just layered on top of a more complicated and slower estate settlement.

Common mistakes

• Assuming DTC loss forces immediate account closure. Since 2021, it doesn't — the holder has a genuine choice, with no fixed deadline attached to that choice.
• Relying on older descriptions of a fixed-year continuity election. That mechanism predates the 2021 rule change and no longer reflects how DTC-loss continuity actually works.
• Assuming an RDSP can name a beneficiary for death, the way a TFSA or RRSP can. It can't — proceeds always go to the estate, with no way around probate.
• Not having a will or named executor, which slows down every asset in an estate, including RDSP proceeds that are already required to route through it.
• Expecting the final RDSP payment to be taxed on the deceased's personal return. It's taxed as income of the estate, in the year the payment is actually made — which may be a different tax year than the year of death.

Sources

• Cessation of disability or death of a beneficiary — Canada Revenue Agency
• Close a registered disability savings plan — Canada Revenue Agency
• Chapter 8: Closing an RDSP — Employment and Social Development Canada
• InfoCapsule 19: Plan closure — Employment and Social Development Canada
• InfoCapsule 17: Assistance holdback amount — Employment and Social Development Canada
• What types of payments are made from an RDSP — Canada Revenue Agency

This article is general financial education, not personalized financial, legal, or tax advice. Account closure timing, AHA calculations, and estate tax treatment depend on individual account history and circumstances — confirm your own situation with the RDSP issuer, the estate's executor, or a qualified tax professional before making decisions.

What to do next

If DTC eligibility has recently lapsed, confirming with the RDSP issuer whether they need any instruction from the holder — or whether the account simply continues as-is — is the practical next step; nothing happens automatically that requires urgent action. If an RDSP is part of an estate, Estate Planning 101: Why Every Canadian Adult Needs a Plan is worth reading alongside Am I Eligible for an RDSP? The Disability Tax Credit Explained and What Is an RDSP? — together they cover the full lifecycle this series has walked through. This is the ninth guide in an ongoing RDSP series.