Michael Machny has been a Barriere resident for many years.  He recently made the move to Kamloops where he is now a Financial Advisor for Edward Jones Investments. Michael says he really enjoys the job

Michael Machny has been a Barriere resident for many years. He recently made the move to Kamloops where he is now a Financial Advisor for Edward Jones Investments. Michael says he really enjoys the job

Michael Machny: Financial Advisor

Estate considerations for RRSP, RRIF and TFSA holders

One of the best gifts you can leave your spouse and family is an orderly and well thought-out estate plan. For many Canadians, their Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF) and Tax-Free Savings Account (TFSA) can represent a major portion of their estate. Many may not be aware of the proper way to incorporate these saving vehicles into their estate plan.

What Happens to Your RRSP or RRIF?

If you don’t have a “qualified” beneficiary named, then the value of your plan immediately before your death is included as income in your terminal tax return.

A “qualified” beneficiary named in your will or RRSP/RRIF plan contract, such as your spouse or common-law partner, can receive the funds and then choose to transfer them tax-deferred to their own RRSP or RRIF.

Potential Risks and Opportunities

Assigning a non-qualified person as beneficiary, such as a healthy, non-dependent child or other relative, may have unintended consequences. It may harm the other estate heirs because an RRSP/RRIF passes over at gross value while taxes owed on it are paid out of the estate. For example, giving an adult child your RRSP and another adult child your equivalently valued non-registered investments may result in the latter receiving less after taxes are settled.

Problems also arise when all your children are named as equal beneficiaries, but one predeceases you. His or her own family may be left out from any distribution if the plan document is not specific enough.

What Happens to Your TFSA?

Interestingly, earnings in your TFSA continue to hold a tax-exempt status upon your death. After that date, though, any additional earnings in that year are taxable so it is important to consider how and when TFSA funds should be distributed.

As with RRSPs and RRIFs, a surviving spouse or common-law partner has special status in most provinces and can be named in a will or contract as “successor holder” of your TFSA. This makes it possible to transfer all your TFSA funds without affecting the successor’s contribution room.

Potential Risks and Opportunities

Not declaring your spouse as the successor holder and naming him or her only as a beneficiary can be a risk. As a mere beneficiary, a spouse can still receive the money tax-free under a special “exempt contribution” rule, but his or her contribution will be limited to the value of the deceased’s TFSA at the time of death. Any excess value will be taxed as income that year. While this would likely not result in a large tax bill today, as TFSAs continue to grow, this could have a significant impact in the future.

Whether it’s an RRSP, RRIF or TFSA, perhaps the most common unintended error is not updating or reviewing named beneficiaries. After a divorce or end of a relationship, for example, it’s not uncommon for a former spouse or partner to still be named as a beneficiary. Changes in blended families or other relations can also cause complications.

As the annual contribution deadline for registered savings plans approaches, now is a great time to meet with your financial advisor to review potential tax or investment opportunities as well as your goals and financial strategy.

Edward Jones, its employees and Edward Jones advisors cannot provide tax or legal advice. Please consult your lawyer or qualified tax advisor regarding your situation.

Edward Jones, Member – Canadian Investor Protection Fund.

 

Michael Machny, Financial Advisor

Edward Jones Investments

office 250-377-3885 • fax 1-877-335-0405

http://www.edwardjones.com