RRSP/RRIF

Many individuals ultimately have leftover funds in their RRSP/RRIF at the time of their passing. Most don't realize that almost half of these funds will be lost to taxes, at the time of their death, even if they name their children as beneficiaries. Charitable giving strategies can help you direct this money away from the tax man to support a cause you believe in.

Most often, at the time of the first death, a couple will normally elect to "roll over" the deceased's remaining RRSP/RRIF funds to the surviving spouse tax free. Preserving the RRSP/RRIF value becomes a concern at the time of the second death as the remaining RRSP/RRIF funds become fully taxable.

For example, say a couple doesn't have any children and they wish to give whatever is left to one or more charities when they pass on. At the time of the second passing, say $100,000 remained in their RRSP/RRIF. If a charity was named as the sole beneficiary of the RRSP/RRIF, the charitable tax receipt would completely eliminate the taxes owing. Without leaving the RRSP to charity, approximately $46,000 of taxes would be due to the CRA. By naming the charity as beneficiary, the charity would receive the $100,000 and the CRA would receive nothing.

Alternatively, if the couple wanted to leave the residual RRSP/RRIF value to their children but also wanted to support the charity, both goals could still be achieved to the disadvantage of the tax man. The couple would purchase a joint-last-to-die permanent insurance policy in the amount of the projected value of the RRSP/RRIF at the time of the second passing. The charity would be named as the beneficiary of the insurance policy; the children the beneficiary of the RRSP/RRIF. Using the same numbers as above, the $100,000 insured death benefit would go to the charity; a charitable tax credit for approximately $46,000 would eliminate the taxes due on the RRSP leaving the full $100,000 for the children.

Just about everyone is using a RRSP/RRIF to support their retirement plans. It is impossible to run your RRSP/RRIF to zero the day you die. As such, leaving the residual amount in your RRSP/RRIF is one of the easiest forms of planned gift giving. A simple change to the beneficiary of your RRSP/RRIF is all it takes. If you wish to also preserve some or all of the RRSP/RRIF residual for your children, we can assist you with the insurance amount and plan required. You will then have the satisfaction of a future gift while retaining the control and use of all your assets during life in case your needs change.

Let us guide you as to the RRSP/RRIF strategy that works the best for your circumstances in conjunction with the rest of your financial plans.

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