Creditor Protection May Matter

Predictability requires that you minimize the external effects on your assets. Particularly retirement assets.

In good times, most people pay too little attention to this factor.

What retirement assets are creditor protected?

There are few clear rules. It varies from province to province, and the federal government is included too because the Bankruptcy and Insolvency Act is a federal statute. There are many forms of such accounts, but the most common are employer pension plans, RRSPs, RRIFs, Registered Disability Savings Plans – RDSP, deferred profit sharing plans, DPSP, and Tax-Free Savings Accounts,- TFSA.

The general overview

Pension plans have been protected for some time, but it was not until the 2009 amendments to the Bankruptcy Act that RRSPs and other plans acquired similar protection.

Federally, the Bankruptcy Act and Insolvency Act provides that your plan is protected from creditors in bankruptcy. However, a creditor could attack it if you do not declare bankruptcy.

All retirement plans are creditor protected before and during bankruptcy in Alberta.

Most provinces do not protect amounts contributed in the previous twelve months. The trustee usually can look at contributions in the last five years if they expect to find fraudulent transactions or transactions in anticipation of bankruptcy.

TFSAs are not protected from creditors except in Quebec.

A life insurance product, a segregated fund, is technically a life annuity and is protected from creditors in bankruptcy or before. That applies whether it is a registered product or not. There are very specific requirements to make it work, though. Principle among them is the beneficiary designation. A spouse, child, grandchild, or parent works. The preferred class of beneficiaries.

Be cautious transferring from an unprotected plan to a segregated fund in anticipation of bankruptcy or within the one-year window. You will be better off if the plan has always existed as a segregated fund.

Registered funds help in a non-insurance product outside Alberta are unprotected except under the bankruptcy act.

Why care?

Business is inherently risky. Profitability prevents some forms of bankruptcy but not all. Product liability or motor vehicle accident claims sometimes exceed the insured limits.

Profitability can turn quickly if economic conditions change dramatically. You may be at financial risk if your business relies on low interest rates either for yourself or for customers.

Predictability of lifestyle in retirement is a high priority. When you are young, you can rebuild those assets. As you grow older, the amount to rebuild and the time to do it become serious problems.

For non-business situations, the rebuilding process is near insurmountable. Employees don’t have the opportunity to have exceptional years to use the extra income to rebuild the fund.

Be aware of how the rules affect Registered Education plans and passive unregistered investments.

The part to remember.

Creditor protection is a tiny factor because most people will never need it.

Insurance products are typically more expensive than other products. They have other features unrelated to creditor protection. However, it will be precious for the tiny share of people who will need more comprehensive protection.

I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at

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