# Tax on RRIFs



## nat1988 (Feb 25, 2014)

Hello,

For tax on RRIFs of deceased individuals in which the adult beneficiary receives the entire payout, does the income have to be *reported* on the decease's tax return or the beneficiary's? Or on either one is fine?

Thanks in advance!

Nat


----------



## Eclectic12 (Oct 20, 2010)

Google is your friend ... there some variables around "adult beneficiary" that will affect this.

http://www.getsmarteraboutmoney.ca/...s-to-your-RRIF-when-you-die.aspx#.Uw7ii4XeJPw
http://www.theglobeandmail.com/glob...g-a-beneficiary-for-your-rrif/article4085061/
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrif-ferr/dth-eng.html


Cheers


----------



## spirit (May 9, 2009)

Interesting thread. I have been discussing this very thing with my husband. I understand the tax implications or our RRSP's if either of us go first and the other is a survivor. My question is this.
If both my husband and I go at the same time eg. car accident (I am knocking on wood as I type) can our RRSP's be divided in two so that each child gets the same amount...provided this was stipulated in the will. This could be done by making one child be the beneficiary of one RRSP and the other the beneficiary of the other....providing we both are deceased at the same time. This way there would not be such a tax burden on the estate collapsing both RRSP's.


----------



## Karen (Jul 24, 2010)

If tax is payable on an RRSP or a RRIF, it is payable by the deceased's estate, not by the beneficiary, spirit, so your plan wouldn't reduce the taxes payable.


----------



## humble_pie (Jun 7, 2009)

spirit's idea does have merit, though.

all couples who are making each other their primary heirs - usually followed by the children at the second level, if the spouse shall have predeceased - should include in their wills the famous 30-day survivorship clause.

this recites that in the event of a mutual accident, ie if the spouse should die or "fail to survive me by thirty days," then the estate shall *not* be deemed to flow to the ultra-short-term accident-surviving spouse.

instead such an estate would flow directly to the next level of beneficiaries.

sometimes the 30 days are extended to 60. It's also possible that different provincial jurisdictions have actual legislation regarding this accident issue. An experienced estate lawyer drafting the wills would have proper advice about such matters.

taxwise, in the event of an accident in which both spouses perish a few hours or days apart, keeping the estates separate could result in a significant benefit.

without the 30-day survivorship clause, even if one spouse survives only for a day or 2, nevertheless he or she would be deemed to have inherited. The estate of the first to die would be taxed; the survivor would be deemed to have inherited, thus combining the estates; then following the death of the survivor, the combined estate would be taxed, likely at a higher level. What a nightmare scenario.

don't let this happen. If you're married & bequeathing first to each other, then to your children, make sure the lawyer writes the 30 or 60 day survivorship clause into both wills. It's standard legal boilerplate. An excellent clause to have in wills even if you're a young couple.


----------



## nat1988 (Feb 25, 2014)

Eclectic12 said:


> Google is your friend ... there some variables around "adult beneficiary" that will affect this.
> 
> http://www.getsmarteraboutmoney.ca/...s-to-your-RRIF-when-you-die.aspx#.Uw7ii4XeJPw
> http://www.theglobeandmail.com/glob...g-a-beneficiary-for-your-rrif/article4085061/
> ...


Thanks for the links. So the globe article is saying that the amounts are reported on the deceased's return, if the beneficiaries are adult children? I've read the CRA article several times but to me I'm not a getting a clear answer to my scenario.


----------



## Eclectic12 (Oct 20, 2010)

Not amounts ... the total value.



> What happens if I pass my RRIF on to an adult child?
> ... The entire value of your RRIF will be included on your final tax return as income


In this case, the total value is going to push up the deceased income tax bill and the adult child is going to receive a lot less.
If the RRIF is worth $100K, that's an additional $100K to report as income on deceased's final income tax form, reducing what's available to be passed on.

If instead the child is financially dependent, then what is paid to the child is taxed but the total value is not included in the final tax return.
If the RRIF is worth $100K, the child receives $100K and if an annuity is bought that pays $18K income, that's what the child will be paying income tax on.


So either way, the beneficiary just has to worry about an increase in their income after receiving the proceeds but the proceeds could vary dramatically. 


Cheers


----------



## Guban (Jul 5, 2011)

humble_pie said:


> taxwise, in the event of an accident in which both spouses perish a few hours or days apart, keeping the estates separate could result in a significant benefit.
> 
> without the 30-day survivorship clause, even if one spouse survives only for a day or 2, nevertheless he or she would be deemed to have inherited. The estate of the first to die would be taxed; the survivor would be deemed to have inherited, thus combining the estates; then following the death of the survivor, the combined estate would be taxed, likely at a higher level. What a nightmare scenario.
> 
> don't let this happen. If you're married & bequeathing first to each other, then to your children, make sure the lawyer writes the 30 or 60 day survivorship clause into both wills. It's standard legal boilerplate. An excellent clause to have in wills even if you're a young couple.


I'm confused about the nightmare. If spouse A dies first and passes everything to spouse B, this can be done at the adjusted cost basis, I believe. This means that there are no capital gains taxes payable for both taxable and registered accounts. Even if there is a deemed disposition, the ACB would be stepped up, and the death of the second spouse would not result in a large difference if he/she passes away soon thereafter.

The only penalty would be the probate tax payable twice in quick succession, but this is relatively small, especially for young couples.


----------



## MrMagoo (Dec 12, 2013)

*A Simpler Scenario*

I am thinking of the more common scenario in which one person dies and their will leaves the entire estate to their (surviving) spouse.

I was under the impression that RRIF and TFSA content could be transferred to the survivor tax-free.

I am not sure about RRSPs in this case.


----------



## Eclectic12 (Oct 20, 2010)

Wonder no more ... it's similar to RRIFs and TFSA where the beneficiary matters.

http://retirehappy.ca/what-happens-your-rrsps-when-die/
http://www.theglobeandmail.com/glob...tax-with-a-proper-beneficiary/article4171500/


Cheers


----------

