Who's going to get all those RRSP assets?
In the rush to first open that RRSP, you probably signed reams of documents. But, if your circumstances have changed at all, now might be a good time to review just what you signed -- particularly when it comes to your beneficiary.
If you're married or living in a common-law relationship, you're probably better off to name your spouse or partner as the beneficiary. This way, your RRSP assets can be rolled over to his or her plan at your death, allowing you to avoid paying tax until the surviving spouse is faced with his or her own final tax return.
Reassess this in the event of divorce or remarriage, however. There have been cases where an RRSP went to a former spouse after the ex’s death.
Not only would the former spouse inherit, but the estate might be liable for the taxes owed as the transaction would no longer qualify as a tax-free rollover. If no beneficiary is chosen at all, the RRSP typically becomes estate property, and taxes will take a big bite.
And if another person is listed as a beneficiary, except in certain cases such as dependent children, you’ll be in the same situation. If you do leave your RRSP to your kids, there are two tax-saving exceptions to be aware of.
You’ll be able to transfer things tax-free if the child is a minor who is financially dependent on you. In this case, the child will be eligible to buy an annuity to age 18 with your plan assets, spreading the tax accordingly.
The second situation is where an older child or grandchild was financially dependent on you at the time of your death as a result of mental or physical problems.
Have you ever bothered to review that RRSP paperwork? Any changes? Any recommendations?
By Gordon Powers/MSN Money
Posted by: Ev MacMillan | Feb 5, 2022 5:05:57 AM
Hi:
Am I the only single person in Canada that believes that this is marital status discrimination? Hey on top of the fact that I have no partner in my life and all I earn is what I have in my retirement, my government decides that any beneficiary I designate will be stuck with an enormous tax bill. My benefiary is UNICEF and is a Charity. I think a donation if I am still working when I die, would only allow for 75% of my earned income for the year and I'm not even sure this can be done. My RRSP is presently worth $200,000.00. My part time income is $34,000.00 . A lot of boomers are going to be single with RRSP, why can't the Canadian government allow a "primary benefiary". Hey, insurance money is passed on tax free to charities, friends, neighbours and homes for one-eyed dogs every day. My solution was that although my RRSP benefiary is UNICEF, I also took out a term life policy with UNICEF as owner and beneficiary and I am sure that the $2,000.00 that costs a year would have probably double the amount I would have in the RRSP, if I had put it there instead.
Posted by: Don | Feb 5, 2022 4:26:11 PM
Ev: You can always give the bulk of your money away before you pass on. This would eliminate the problem.
The governnment does not want to do this because if you leave it to a spouse they eventually pass on and the government still gets a cut. Not only that but they have to pay less pension to the survivor. Like it or not the government needs money to run and every bit helps their cause. I would sooner let them have it when I am dead than pay higher tax rates when living because if they lose this revenue stream.( we know they never lose) they will just get it elsewhere.
Posted by: grannyone | Feb 7, 2022 4:18:52 PM
what happens if you have money in an rsp and you lose a lawsuit. Can this money be seized by creditors?
Posted by: Paul | Feb 7, 2022 6:32:04 PM
grannyone...you may want to check with your financial advisor. The rules regarding this may have changed depending on the province you live in. In the past if your RRSP was with a bank or credit union there was no creditor protection. If it was with an insurance company you would be fine. I thought I had read somewhere this may have changed in the last couple of years to include both the banks and credit union.
Posted by: Kim Austin | Feb 7, 2022 11:12:13 PM
What really irks me is that you work all your life save and put in rrsp for later on and then you have to pay tax on it again when you want it. That is a total farse. You pay tax when you make it in the first place, yes you get a tax deduction whoopy do. still not fair.
ALso when you do take it later on in retirement you are dinged by the goverment for a private pension so you loose either way.
Posted by: Tris | Feb 7, 2022 11:23:32 PM
Kim: Your RRSP contribution is deducted from your income that you are taxed on. Essentially you are getting the tax back that you paid on the money you contributed to your RRSP's. RRSP's are tax deferrals. Save tax on your higher income now and pay tax later when you do not have as much income. How is that a total farce?
Posted by: gail | Feb 10, 2022 7:40:02 AM
When my father died he had a rrsp with canada trust/td bank. They lost all the legal papers, but my father told me...(I WAS AN ONLY CHILD) that my 3 children were the beneficiaries. The employee from the bank told me...she help fill in the papers originally, that my 3 children were the beneficiaries...the only legal form found said, "multiple beneficiaries" not a spouse. He had a live in companion. Her lawyer wanted that money...and my lawyer said to give it to her and not my children. As executor, I did this, because I was told I really had no other option. I waited almost 8 months for canada trust /td bank to find the missing legal papers. Did I really have no other choice, as my father, who only had a gr. 8 education wanted this money for my kid's university. I want to sue the bank. Can I do this?
Posted by: John Hossack | Feb 10, 2022 12:08:54 PM
Gail:
Why is it when people have a legal question they go to the internet, the corn flakes box or the refrigerator repairman before they will ask a lawyer. Most of the comments above (not the replies) just show that these folks do not realy understand how taxes and RRSPs really work. Most of the people in banks that sell them really don't know the legal side effects either. If you want good planning advice, ask a lawyer who works in the Estate and Tax field for planning advice.
Posted by: gail | Feb 13, 2022 12:43:29 AM
Well, I spoke to 2 lawyers....they said..."It doesn't matter, give her the money, because if she sues the estate...it will end up costing you more money than the rrsp...(80,000.00) So I paid 2 lawyers, maybe 500. to 600. an hr. for that advise....My original question was..."Is the bank (TD) not liable for loosing any legal documentation that affects an estate. I am in discussions with a lawer at this time, but travel out of the country.....so am actually following up on this when I arrive back in Canada. I think ppl. like me, write on these blogs in case they find other ppl. who may have had similar experiences.....so don't be so negative when you don't understand the whole question. thank you.