RRSP/RRIF Gifting

One of Canadians greatest savings vehicles has traditionally been Registered Retirement Savings Programs. While we are making deposits to the program, we receive our tax deductions, and the investment grows. But as our investment grows through contributions and growth, so do the taxes inside the savings program.

See when we get a deduction; it is really only a deferral of taxes into the future. Even if you stop contributing to the RRSP, the growth of the money due to interest continues to fuel the future tax obligation.

When it is time to start turning your Savings Program into an Income Program RRSP to RRIF, we start to slowly pay back the tax that is sheltered inside the Program. But what happens to the residual value that we do not use in our lifetimes? It is fully TAXED. It is brought into your final year of income in its entirety, meaning the residual income could be taxed at the highest rate possible 46.4% in Ontario.

Few people have thought about how much tax would be owing to the government if they had passed away yesterday... Whether your RRSP/RRIF is at the Bank, in Mutual Funds, or with an Investment Advisor, the rules are all under the same RRSP/RRIF Legislation here in Canada.

We know that people have worked hard over the years to contribute to their retirement program over the years, and rely on it for their future so our recommendations are based upon you enjoying it while you are alive, and giving the residual value to a Charity of your choice. The reason why is Charities don’t have to pay the tax you or your family would have to...

That’s right, when you transfer the residual assets to a charity, they receive your RRSP/RRIF in its entirety, with no tax owing, and your estate gets a tax credit for your contribution. That way it is a win/win for you and your charity. You get to direct where your money goes, and the charity benefits from the tax free gift, as opposed to sending a cheque to Ottawa for them to decide what to do with your money.

You can also list more than one charity to receive the residual value, as you may have many causes or charities that you would like to support, and that is ok too. But your affairs must be taken care of sooner than later, and it is so simple to do. If you have listed a charity in your Will this is a very private and effective way to give, while receiving the full tax benefits of this strategy. Read the examples below to see if any of these situations sound similar to yours...

All of these situations are unique and are based upon the donor, and need to be discussed further to maximize the value and benefit to all.

A story about how this works;

Francine, widower in her 70’s...

RRSP Giving

Francine has lived a wonderful life; her husband had passed away just a few years ago. He was a veteran of WWII and had vowed after his service to continue on and help the people around him in both his church and his community. The couple had lived a very modest life, and had no children to speak of.

Francine’s sister had been there for her through her husband’s sickness, passing and the years that followed, and actually lived in the same house with Francine. Since the sister had moved from her house a few cities away to be with Francine, Francine had always intended her sister to live in and receive the home after her passing, and Francine’s sister was quite younger than her. Francine had never worked in her early years, and her husband took care of most of the financial responsibility for the family. He had a pension from the veterans, a pension from his employer, Canada pension plan, and a handful of rrsp’s through many different banks and institutions.

Francine’s financial health was in good shape, and she was receiving more income than she needed to survive, so she was also accumulating a decent amount of overflow income into her savings account each and every month. Most of her time was spent volunteering for a few different causes which she was overly passionate about. The hospital where her husband was cared for so empathetically was one of her first priorities. With all the care and support both her and her husband received in their most trying times, they both agreed that they would support them even after her husband’s passing. As well, their church had become a centre for both support and inspiration over the last 20 years, and he wanted them to be recognized in Francine’s final wishes as well.

Since the pensions which she received would stop obviously after Francine had passed away her estate really only had to worry about the savings accounts at the bank, her home and the residual value of her RRSP/RRIF. After sitting down with our office, we determined that she could leave her home to her sister in the will, the savings account could be used for any expenses incurred throughout the probate process, as well as provide some income to supplement any shortfall she may have after her sister was no longer here.

The RRSP/RRIF’s are not able to transfer to siblings, so this is where the value of those assets would be reduced by all the tax still owing in these deferred tax investments. So much actually; that the value of the RRSP/RRIF would be worth approximately half of their value if they were taxed and transferred to her sister.  She truly believed that her two favourite charities could benefit far more from her gift, than simply handing over half of the value of her savings to the government. By naming the two charities of the Hospital and the Church as the beneficiaries of her RRSP/RRIF she can transfer the value in its entirety to both causes, without being eroded by taxes, and not having to make any special requests in her will.

It became win-win-win for all.

It is a win for Francine, as she could continue on her mission to help even after she was no longer here to do so.

And it is a win for her sister, simplifying her job as an executor and minimizing the amount of tax due so she could retain more of the savings account.

And finally a win for both charities as they would receive their donation almost immediately after the passing of Francine, and since charities don’t pay taxes, they would receive the value of the RRSP/RRIF in its entirety.

A simple plan that will achieve so much for so many and it didn’t take much more than a few minor adjustments to her current situation to fully realize the difference she could make.

Please call our office today to see how we may help you, Leave a Lasting Legacy...