A recent article from CBC, Halifax women calling for more protections on RRSPs after husband’s sudden death by Emma Davie, reviews what can happen if you don’t have correct beneficiary designations on your registered plans.
The article explained that the husband in the story had named his mother as the beneficiary of his RRSP when it was originally set up years ago, and he had not changed it.
The husband passed away suddenly at the age of 50. His RRSP with a value of $685,000 was left to his mother. Everything else was left to his wife.
The income tax on his RRSP was $369, 000 (54%) If the husband had named his spouse as beneficiary of the RRSP, the entire amount would have transferred to his spouse tax-free, which is what he had wanted.
Whom you named as a beneficiary can be easily forgotten. I suggest that you review your beneficiaries on a regular basis to make sure that the designations match up with what you want and coincide with your entire estate plan.
This would include all plans that you own personally or plans that you may have with your company such as:
- RRSPs
- LIRA’s
- RRIFs/LIFs
- TFSAs
- Life insurance plans
Contact your financial advisor and/or financial institutions today!!
Excerpts from the Book – Preserving Wealth – written by Jack Lumsden, MBA, CFP®
“I’m glad you asked,” said Alice, beating Uncle Wayne to the punch. “Non-probatable assets are assets that are transferred to a beneficiary outside of a will. For example, if spouses own a house together as joint tenants, then one’s share passes directly to the other if either die. That means the value of the share in the house doesn’t have to go through probate, so no probate or executor fees are paid. Now, with RRSPs …”
“Hold it a minute,” Uncle Wayne interrupted. “You should all know that the same thing applies to bank accounts and other investments that are held jointly. If you don’t have joint ownership for financial accounts, then a spouse can’t get his or her hands on the assets until they go through probate. Sorry, Alice. Carry on.”
“Thanks,” she said, smiling. “With RRSPs, you can name a beneficiary, and if it’s your spouse, the RRSPs can be passed tax-free and outside the will directly into the surviving spouse’s RRSP, without being subjected to probate fees.
“If the beneficiaries are the children or grandchildren, under the age of eighteen and financially dependent, the RRSP proceeds either have to be included in the income of the child or grandchildren, or the proceeds can be used to buy an annuity, payable to the age of eighteen only. If this is done, income taxes would be paid on the income as the kids get it.”
“Would my kids be classified as dependent?” asked Mark.
“Under your definition, they probably would,” laughed Uncle Wayne, “but not according to Revenue Canada. By their rules, a child over the age of eighteen must be either infirm or handicapped, in order to be considered dependent. In a case such as this, the RRSP monies left to them could be rolled over into the dependent child’s RRSP or RRIF or used to buy an annuity.”
“There’s more,” Alice cautioned. “You should also name someone as direct beneficiary on all life insurance policies, including your group benefits at work. A lot of people name their estate as beneficiary, but then the proceeds must go through probate, and again, the estate pays a fee, and the heirs get less.”
Uncle Wayne added, “Some good points, Alice; however, you most likely will not want to name minor children as beneficiaries of life insurance. By naming your estate, the terms and conditions of your will apply, which is what you most likely desire.”
“Well,” said Sandra, “if we want to reduce potential probate costs, we’ll have to make sure our house and bank accounts are held jointly. What’s the procedure, Uncle Wayne?”
“You should double check, and while you’re at it, make sure you’ve named beneficiaries in all of your life insurance policies too. By the way, this stuff should all be in your binders.”
“I bet that Mark’s life insurance policy at work still lists his ex-wife as beneficiary!” Sally said with a devilish grin.
“You would lose that bet. I changed it last week.”
For more information you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing and transferring wealth by Jack Lumsden, MBA, CFP®
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Jack Lumsden, MBA CFP® Financial Advisor, Assante Financial Management Ltd.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.
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