Personal Finance

RRSP planning for death

  • Last Updated:
  • Nov 12th, 2018 1:25 am
Deal Addict
Oct 11, 2010
1013 posts
345 upvotes
Charlottetown

RRSP planning for death

Unfortunately my mother whom has been battling cancer has been given a couple months to live. Her finances are relatively straight forward, she and my father are retired and live in an in-law suite attached to my sisters house so they don't have a mortgage or really any other debt. My father just collects CPP and old age pension and my mother is collecting CPP and a small government pension (she was a nurse, but didn't pay in to pension plan until late in her career).

A while ago I helped her setup an RRSP and TFSA, the rrsp was to roll in 36k severance pay she received when she retired, to defer taxes. I opened a TFSA for her at the same time and she had $10k to contribute to that.

Both accounts were setup with beneficiaries like this (at questrade):

child 1: 10%
child 2: 10%
child 3: 10%
spouse: 70%

There are no minors or financial dependent children/grand children involved. The 36k RRSP is 100% cash right now, the 10k TFSA is invested in a couple stocks (I'm thinking about selling this now to convert to cash, or at the very least selling it soon after her death as I believe gains accumulated in an account after death can be subject to taxes in the beneficiaries hands).

So questions. Firstly, I understand this is not a lot of money we are dealing with here, but she is concerned that everything be taken care of when she dies and wants to be reassured about what will happen.

It's my understanding that her RRSP can roll over to my father and tax can be deferred. Does this still apply when other beneficiaries are named? I.e. can 70% go directly to my father's RRSP, then the other 30% to the kids and we'd only have to include 30% of the RRSP on my mothers final death taxes as taxable income i.e. $10,800 (30% of 36k) reported as income on her final taxes?

I understand the TFSA is tax free and we shouldn't need to worry about that account.

I'm starting to question if we set this up the best way or not, or if there could be anything else we should be doing right now to make this easier such as withdrawing some or all funds now and moving to her TFSA etc. Or rolling the entire amount to my fathers RRSP and then withdrawing small amounts from his RRSP to give to children.

Does Questrade take care of all of this distribution of the funds to the multiple beneficiaries? They have a form with all of our names, addresses and social insurance numbers afaik.

Also is there any other considerations I should be making here, about what happens to her CPP and work pension?
4 replies
Deal Fanatic
Nov 24, 2013
6479 posts
3344 upvotes
Kingston, ON
Very sorry about your mom’s terminal diagnosis. That must be so hard on you all,
goldenball wrote: https://retirehappy.ca/what-happens-you ... -when-die/

I think usually only the spouse can get the rrsp rollover tax free

also for tfsa

https://retirehappy.ca/tfsa-beneficiary-rules/
These links have good advice. If your dad is the successor holder of the TFSA (and rolls over the RRSP), versus beneficiary amounts for the kids, there is a tax benefit to that. The amount in her TFSA gets to continue to grow tax-free long after her death, versus her contribution room effectively being lost if the cash is just paid out to beneficiaries. That said, at $10k balance and your dad already retired, the benefit is more theoretical than material.

There’s almost no downside to doing it that way though. If he was successor-holder of the TFSA, he could still withdraw TFSA funds (from his TFSA) to give the intended amount to each kid, and the contribution room is preserved because you can recontribute any withdrawals the next calendar year. Admittedly this is probably splitting hairs but objectively it is worth considering.
Deal Addict
Jan 30, 2012
1836 posts
1399 upvotes
TORONTO
My sympathies OP. I've dealt with terminal illnesses before.

An important question is what does your mother want to do with her assets? Leave most/all to her spouse?

What province? Is there a will? Life insurance?

What is your mother's income this year? Father's income this year?

Does the pension have a survivor's benefit (ie, does the pension continue to pay to her spouse on death?)

How old is your father? Is he in good health?

If her income this year is low, she might be better off making a small withdrawal from the RRSP this year, and/or making a withdrawal next year on Jan 2, which lets her take money out at a low tax rate.

As others have mentioned, having child beneficiaries listed for RRSP/TFSA isn't the best from a tax perspective, the spouse is much better since it transfers tax-free and can continue to earn money tax-free.
Deal Fanatic
Jul 1, 2007
8569 posts
1763 upvotes
Make things easier and just change the beneficiary/successor to your father for both. Makes no sense, especially for such small accounts, to name multiple beneficiaries, unless the child beneficiaries really need the money or something.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)