Losing Disability Tax Credit (DTC) eligibility and a beneficiary passing away sound like they should trigger roughly the same response from a Registered Disability Savings Plan (RDSP), since both mean the account can no longer serve its original purpose. They don’t. If a living beneficiary simply stops qualifying for the DTC, the holder can choose to keep the plan open with no immediate repayment of grants or bonds required. Death allows for no such choice. The plan must close, and every dollar of Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) paid into the account in the 10 years before death has to be repaid to the government in full, not the smaller proportional amount that applies to an ordinary withdrawal.
That distinction, full repayment on death versus a choice to keep going on DTC loss, is the first thing worth understanding, since it shapes what actually reaches a beneficiary’s family once the account is finally settled.
The Mandatory Closing Date
An RDSP has to be terminated by December 31 of the year following the year the beneficiary died. This isn’t a suggestion or a deadline the holder can negotiate. A death in March 2026, for instance, gives the holder until the end of 2027 to close the account, but the plan cannot simply continue operating past that point the way it might if the beneficiary had only lost DTC eligibility. Notify the RDSP issuer as soon as possible after the death, since the closing process, the repayment calculation, and the eventual payout to the estate all start from that notification.
Why Death Triggers Full Repayment, Not Partial
An ordinary withdrawal from an RDSP while the beneficiary is alive only pulls back the lesser of two amounts, either three dollars of grant and bond money for every dollar withdrawn, or the full Assistance Holdback Amount, whichever is smaller. Death removes that softer calculation entirely. Because the plan is being closed outright rather than partially drawn down, the full Assistance Holdback Amount comes due, meaning every dollar of CDSG and CDSB received in the preceding decade goes back to the government regardless of how large or small that total happens to be. Grant and bond money older than 10 years at the time of death isn’t touched by this repayment, a distinction that matters for a beneficiary who received their strongest matching years early in life.
What Actually Reaches the Estate
Once the repayment is settled, whatever remains in the account gets paid out. The beneficiary’s own contributions come out completely tax-free, since that money was taxed before it ever went in, the same principle covered in the full breakdown of what’s taxable on an RDSP withdrawal. Investment growth, any grants and bonds that survived the 10-year repayment window, and any amounts previously rolled over from an RESP or a deceased parent’s RRSP or RRIF are taxable, but the tax liability shifts to the beneficiary’s estate rather than following the beneficiary personally, since there’s no longer a living person to report it.
If a Withdrawal Was Already in Motion
A Disability Assistance Payment requested before death but not yet paid out doesn’t disappear or need to be requested again. If the payment is issued after the beneficiary has died, the taxable portion of that specific DAP gets reported as income of the estate in the tax year the payment actually goes out, the same treatment as the rest of the plan’s taxable proceeds. This matters for timing purposes if a withdrawal was already requested close to when a beneficiary passed away, since the exact date the money moves, not the date it was requested, determines which tax year picks up that income.
Who Actually Receives It
The RDSP itself doesn’t carry a beneficiary designation the way a life insurance policy or an RRSP might, so the money doesn’t automatically flow to a named person outside the estate process. Once the plan closes and any required repayment is made, the remaining balance becomes part of the beneficiary’s estate and gets distributed according to their will. Without a will, provincial intestacy rules determine who receives it instead, the same process that governs the rest of an estate with no will in place. This is worth factoring into estate planning conversations well before it becomes relevant, particularly for a beneficiary whose broader estate plan hasn’t been reviewed in a while.
When the Account Holder Dies Instead
A different scenario entirely, and one that’s easy to conflate with the beneficiary’s death, is what happens if the plan holder passes away while the beneficiary is still alive. The RDSP itself doesn’t need to close in this case, since the beneficiary’s own eligibility hasn’t changed. Instead, the deceased holder’s executor typically takes temporary control of the plan until a new holder, often another parent, guardian, or qualifying family member, is formally put in place, a process related to the same rules covered in how an RDSP moves between institutions or hands. Contributions and withdrawals generally continue once that transition is complete, without triggering the full repayment consequences that apply when the beneficiary themselves dies.
Handling This Practically
Contact the RDSP issuer directly and promptly once a beneficiary passes away, since the December 31 deadline the following year starts effectively running from that point and the institution needs to calculate the exact repayment before anything can be finalized. Provincial governments generally publish their own checklist of who to notify after a death, and a financial institution holding an RDSP belongs on that list alongside the more obvious accounts. If there’s a will in place, confirm it actually addresses how RDSP proceeds should be handled once they reach the estate, since a will drafted before the RDSP existed may not mention it explicitly. And if the beneficiary held other registered accounts alongside the RDSP, coordinate the estate settlement across all of them rather than treating the RDSP in isolation, since the repayment and tax mechanics here are specific enough that they’re easy to miss if a family or executor is working from a generic estate checklist.
