# Taxes and Terminal Illness



## wanthusky (Jan 6, 2011)

Hi all,

Appreciate any advice you may have on this matter. I'm not well versed in taxation, so forgive me if this makes no sense. 

I'm looking into tax consequences upon death and ways to best manage tax wise how accounts are handled shortly prior to death. The idea is, if you knew you were going to pass away, and wanted to best preserve any assets you might have for your relatives, instead of giving it to the tax man: 

Potential Deceased: single, and no children. 
Debt: car loan with bank, student loans with government


Cash/Savings/Chequing Accounts: could you just withdraw all the funds and pay them to your relatives prior to dying? 

Tax Free Savings: could you just withdraw all the funds and pay them to your relatives prior to dying? Does the government have any control or power over how one uses these funds since its registered? 

RRSPS - since there is no rollover possibility to spouse or dependent children, these would be taxed on death, the estate would pay the taxes and the remainder paid to the beneficiary/residual beneficiaries correct?
What if before death you quit your job (lower income in year of death?) and withdrew your RRSPS to use/buy things for your relatives? Is this a better option rather than waiting till the RRSPs are withdrawn on death?

Debts: car loan - on death, if you stopped making payments on the car loan, would they just repossess? If there are no assets left in the estate (since all liquid assets were paid out prior to death, would it affect the estate? Would the lender have any claim to the cash/tfsa funds as noted above if they were paid to the relatives?

Student Loans - I think these are forgiven on death; but does the govt have any claim to the cash/tfsa funds paid to relatives above?

Thanks!


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## OhGreatGuru (May 24, 2009)

_Cash/Savings/Chequing Accounts: could you just withdraw all the funds and pay them to your relatives prior to dying?_ *Yes*

_Tax Free Savings: could you just withdraw all the funds and pay them to your relatives prior to dying? _ *Yes. * _Does the government have any control or power over how one uses these funds since its registered?_ *No.*

_RRSPS - since there is no rollover possibility to spouse or dependent children, these would be taxed on death, the estate would pay the taxes and the remainder paid to the beneficiary/residual beneficiaries correct?_

Catch 22 #1. The Estate is liable for the tax bill, but the financial institution pays the RRSP to the benefciairy. If they do not withhold sufficient tax, there may be insufficient funds in the estate to pay the tax bill. CRA can come after the beneficiaries if this happens, but it is much better to ensure there are sufficient funds estate for Executor to deal with it.

Catch 22 #2. Making the RRSP payable to estate solves the above problem, but creates others. If the RRSP is made payable to the estate rather than a beneficiary, the bank may require a probated will before releasing the funds to the executor if the amount is over their internal policy limits (~$30k for RBC) . This can take months, costs legal fees & probate fees; 

_What if before death you quit your job (lower income in year of death?) and withdrew your RRSPS to use/buy things for your relatives? Is this a better option rather than waiting till the RRSPs are withdrawn on death?_ *Probably, because all tax issues would be dealt with either prior to death or at least in the Final Return. Just have to make sure the tax bill is covered before you give it all away. No legal/probate fees, no Estate Dept. to deal with.*

_Debts: car loan - on death, if you stopped making payments on the car loan, would they just repossess? If there are no assets left in the estate (since all liquid assets were paid out prior to death, would it affect the estate? Would the lender have any claim to the cash/tfsa funds as noted above if they were paid to the relatives?_ *Don't know how it would work out in detail. But in principal the executor is responsible for protecting the property of the deceased and paying their just debts. I suspect the loan agreement has some provisions for what happens on death of the borrower. I also suspect lender could go after beneficiaries if the deceased had effectively circumvented his debt obligations by passing hsiassets to others. But don't know for sure.*
_
Student Loans - I think these are forgiven on death; but does the govt have any claim to the cash/tfsa funds paid to relatives above? _ *Don't know.*


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## Guest (May 27, 2011)

And don't forget to take out as large a life insured loan or loans as possible ... convert to cash ... distribute ... it's been done.


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## wanthusky (Jan 6, 2011)

Thanks all! Appreciate your help!


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