# RRIF and TFSA Beneficiary - Transfer in-kind?



## CPA Candidate (Dec 15, 2013)

My father died in January and left his investments between my brother and I; including his RRIF and TFSA. We were named beneficiaries of the accounts and therefore distribution does not have to go through the will.

My Dad's accounts are at CIBC WG, a full cost brokerage (high commissions) and therefore I would prefer to transfer the securities in-kind to avoid being gouged if I have CIBC sell the assets. 

Unfortunately, when I was investigating the mechanics of the transfer I found a note on the Questrade website (my brokerage) that transfers in-kind were only possible between the same type of account, and a transfer in-kind from a RRIF or a TFSA to a non-registered account would not be possible (my RRSP and TFSA do not have contribution room).

As far as the tax treatments go, I have a good handle on that and will be filing the returns myself. I am concerned with the mechanics of getting the money out as efficiently as possible. 

Does anyone know if:
- It is ever possible to transfer in-kind from registered to non-registered, regardless of brokerage? In other words, is the above situation the norm at every brokerage?

Am I likely stuck having CIBC sell the assets and take 2-3% commission? The only upside is that government would pay for 50.4% of the commission (the marginal tax rate for his final return).

Just as an aside, the RRIF has turned out to be a tax disaster. With no spouse to roll the RRIF over to; the value of the RRIF on the day he died will be taken completely into income in the final return and the CRA is going to take nearly half of the RRIF. The majority of the value will be taxed at 50.4%.


----------



## InvestingForMe (Sep 6, 2012)

Hi,

If you want to receive your share of the investments in kind, simple instruct CIBC Wood Gundy to open a non-registered account in your name, then have them transfer your share of the investments, in kind, to your new account. Then you can transfer your CIBC Wood Gundy non-registered investments to a non-registered account at another firm, in kind. This is done all the time, as the investments cannot stay in your father's name anyway.

Your brother can do the same or take his portion in cash if he so chooses.

Hope this helps.


----------



## OptsyEagle (Nov 29, 2009)

+1

or just instruct CIBC WG to transfer the assets from the RRIF/TFSA in-kind" to your non-registered Questrade accounts. 

You are not transferring your fathers accounts, you are transferring your fathers assets. The registrations of this RRIF and TFSA were officially gone on the day he died, when there was no surviving spouse listed as a beneficiary. CIBC WG will deal with all the deregistration paperwork and Questrade will receive the assets after they are gone. In my opinion, they technically are already in a non-registered account at CIBC WG. They just might not know it yet.


----------



## Userkare (Nov 17, 2014)

CPA Candidate said:


> Just as an aside, the RRIF has turned out to be a tax disaster. With no spouse to roll the RRIF over to; the value of the RRIF on the day he died will be taken completely into income in the final return and the CRA is going to take nearly half of the RRIF. The majority of the value will be taxed at 50.4%.


Just to be precise, you & your brother should receive the entire value of the RRIF; CRA will not take any. The "estate" will have to pay the tax on the RRIF as if it were your father's income. If you two are the sole beneficiaries of the estate, then it doesn't matter one way or the other; taxes are inevitable. But, OTOH, if there are other beneficiaries, they will all lose their proportionate part of their inheritance to pay the taxes on money that you and your brother received. I don't know why CRA made this rule, it could lead to a lot of bad feelings in families at a time when they should be feeling closer.


----------



## humble_pie (Jun 7, 2009)

CPA Candidate said:


> ... the RRIF has turned out to be a tax disaster. With no spouse to roll the RRIF over to; the value of the RRIF on the day he died will be taken completely into income in the final return and the CRA is going to take nearly half of the RRIF. The majority of the value will be taxed at 50.4%.




canadians are beginning to understand this on a wide scale. Upon death of a single taxpayer or upon the death of a surviving spouse, entire remaining RRSP & RRIF balances become taxable at 100%.

this is why some folks are either not contributing to RRSP or else they are withdrawing in small increments via small early RRIFs as soon as they are eligible.

otherwise, intact RRSPs & RRIFs become a gigantic windfall for the CRA. The tax authorities are finally getting to harvest the bountiful crop of income taxes they have been so patiently watering & waiting for all these decades. 

i believe it was lester pearson who brought in the RRSP? the nobel laureate must be smiling in his grave.


.


----------



## SixesAndSevens (Dec 4, 2009)

is there any minimum age to convert Rrsp to Rrif?


----------



## humble_pie (Jun 7, 2009)

Userkare said:


> Just to be precise, you & your brother should receive the entire value of the RRIF; CRA will not take any. The "estate" will have to pay the tax on the RRIF as if it were your father's income. If you two are the sole beneficiaries of the estate, then it doesn't matter one way or the other; taxes are inevitable. But, OTOH, if there are other beneficiaries, they will all lose their proportionate part of their inheritance to pay the taxes on money that you and your brother received. I don't know why CRA made this rule, it could lead to a lot of bad feelings in families at a time when they should be feeling closer.



subtle but good point in estate planning. Not a good idea to name non-spousal beneficiaries to one's TFSA unless one includes all of the heirs. In which case, why bother? just include the TFSA with the residue of the estate ...

.


----------



## twa2w (Mar 5, 2016)

Couple of points.
Usually with an estate, brokerages will discount their fee. Worth it to ask. Maybe less hassle than transfer in kind.

Not sure who the executor is on this but CIBCWG should accept a letter of instruction from the executor to distribute the proceeds of the RIF and TFSA to the beneficiaries. This would include distributing in kind to non-reg accounts of the beneficiaries. Note there will be fees for this too. You will have to ask CIBCWG specifically if they will do this. I know it used to be done but there have been rule changes over last few years that I have not kept up on.
And yes, you will find that very likely CIBCWG needs letter of direction executor, not beneficiary. No room to go into reasons why here.

While it is true the proceeds of the RIF are distributed to the beneficiaries without withholding tax, CRA can and will come after the beneficiaries for the tax if there are not sufficient assets outside the RIF to cover the tax bill.

The estate may also owe tax on the TFSA if there has been a gain in value after date of death.

You will need probate on the estate, unless it is really small, before any distributions are made.


----------



## OnlyMyOpinion (Sep 1, 2013)

twa2w said:


> ... You will need probate on the estate, unless it is really small, before any distributions are made.


Yup, kind of a gotcha, you save a bit of probate ('estate administration tax' in Ontario) but are likely to still have to wait out the probate ('application for certificate of appointment of estate trustee...') timelines to process a TSFA/RRSP/RRIF that falls outside of the estate and is going to a beneficiary other than the spouse.


----------



## fireseeker (Jul 24, 2017)

CPA Candidate said:


> Does anyone know if:
> - It is ever possible to transfer in-kind from registered to non-registered, regardless of brokerage? In other words, is the above situation the norm at every brokerage?


I am not sure whether your question is about in-kind transfers generally, or only in-kind transfers between accounts with different owners (rare).
If the former, it is certainly possible for the same owner to make in-kind deposits or withdrawals between an unregistered account and an RRSP. I have done so with ease at BMOIL.
My sympathies to you and your brother.


----------



## CPA Candidate (Dec 15, 2013)

Here's a question for those familiar with such matters; what ACB do I use for the shares when I receive them in my account? I arranged to have all the shares from each of the accounts transferred to my non-registered account.

It would make sense to use the prices at the date of death; but I have been unable to find a definite answer on the internet. Basically every investment has declined in value since the date of death and the estate (me and my brother 50/50) will be paying taxes on the share prices on the close of that day.

Getting the shares transferred has been a pain; the people at the brokerage seem to be a bit clueless and sent me some forms that didn't make sense and I had to point it out to them. Then, then CIBC's estate department rejected my brother's signature twice and we had to get our lawyer to sign an affidavit to verify his identity. It's been over 3 months since his death and we've had to pay over $10,000 each for funeral, probate and other fees and have yet to receive a dime from the estate.


----------



## Eclectic12 (Oct 20, 2010)

Are these exotic shares/units on a foreign exchange?

If they are North American, the yahoo.ca finance section can be used to pull up the chart. Then select the "Historical Data" tab. 

The changing of the "Time Period" I find clunky, now that they have switched to a tablet type interface but it works. The part I sometimes forget is after picking the packaged time frame, say 5 years or setting a custom one - click on the "Done" button then the "Apply" button. [It seems the Done sets the range and the Apply then fetches the smaller/larger data set.]

I would pick the middle of "High" to the "Low" ... but that is personal preference instead of something an article has indicated.

Just don't use the "Adjusted Close" as that includes dividends.


Sorry to hear the process as well as having the estate pay expenses has been such a mess.


Cheers


----------



## AltaRed (Jun 8, 2009)

I understand the assets capital value (and income therefrom) belong to the named beneficiary as of the date of death......even if they have not yet been distributed. Any losses since market value on the date of death would accrue to the beneficiary's account.

Found this excerpt from http://www.moneysense.ca/save/financial-planning/what-happens-to-a-tfsa-after-you-die/ to support that


> If you don’t have a spouse or common-law partner on your death, or you choose to appoint someone else as “beneficiary”, things work a bit differently. A non-spouse beneficiary is deemed to acquire the TFSA on your date of death, with any subsequent capital gains, losses or income being taxable on that beneficiary’s tax return.


Added: I've used market close on date of death for market value. That is what RBC DI used as well in their letter to me to 'validate' the data I used in tax returns.

Added yet later.... When our mother died, my bro and I made the decision to crystallize the assets (as co-executors) right away (but not distributing them), knowing it was going to take time, even with a TFSA to get the brokerage to agree to distribution. We didn't want equities in limbo had the market turned. Think about it this way: Even if the RRSP and/or a TFSA have named beneficiaries, the holding institution still must be relatively certain the executor is who she/he says she/he is. Indeed, the primary purpose of probate is to validate certainty of the Will being valid, and by default the executor. Technically, until the Will is probated, the financial institution really cannot be certain they are talking to the rightful executor.

Naming beneficiaries is mostly a benefit for surviving spouses, rather than other people, and of course to avoid probate fees (if such fees are large in one's particular province).


----------



## twa2w (Mar 5, 2016)

Not sure if this was mentioned previously in the thread, or if there are other assets and beneficiaries in the estate.
But since the OP mentioned tax on the RIF...
it is true that when an RSP or RIF is distributed to a beneficiary, income tax is not witheld and the the tax is paid from the other assets of the estate. However, if there are insufficient other assets to cover the tax bill, CRA can and will come after the proceeds of the RSP and RIF to cover taxes.
This is one reason that some banks will not distribute RSP/RIF proceeds to a beneficiary without a letter of direction from the executor.


----------



## canew90 (Jul 13, 2016)

humble_pie said:


> canadians are beginning to understand this on a wide scale. Upon death of a single taxpayer or upon the death of a surviving spouse, entire remaining RRSP & RRIF balances become taxable at 100%.
> 
> this is why some folks are either not contributing to RRSP or else they are withdrawing in small increments via small early RRIFs as soon as they are eligible.
> 
> ...


I think you are 100% correct that at death the Tax must be paid on the estate first. I'm not sure that being a beneficiary, unless one is a minor would change that, only a spouse. Then what's left can be transferred, to other accounts, some to max out a rrsp or a tfsa and they can be transferred In Kind. They may have to go through a Non-reg account then into the registered and there may be CG or possibly a Loss at that time.


----------



## OnlyMyOpinion (Sep 1, 2013)

What's unfair about the CRA getting their money? It's just a lump sum repayment of taxes that were deferred, sometimes for many years. 
Meanwhile the annuitant and their surviving spouse have benefited from a steady retirement income (which uses the much-vaunted VPW method incidently). Once both are gone, they don't need it any more.
And estate beneficiaries shouldn't feel hard done by either. They are the ones receiving the windfall.


----------



## humble_pie (Jun 7, 2009)

OnlyMyOpinion said:


> What's unfair about the CRA getting their money? It's just a lump sum repayment of taxes that were deferred [in an RRSP or RRIF,) sometimes for many years.



i don't believe anyone said it was unfair. However folks should be aware of the potential big tax bite. 

in some cases - for example folks could sell a big family home that they've owned 35 years for $1 million or more in tax-free capital gain - a taxpayer will be better off financially in retirement than he might have ever dreamed possible when he was in his 30s & 40s, struggling to support a young family & a mortgage.


.


----------



## humble_pie (Jun 7, 2009)

here is a technical question re TFSAs & final tax return of a deceased person.

up to now, i had been thinking that a TFSA, if not bequeathed to a spouse, is considered to be fully withdrawn/collapsed as of the date of death. Therefore i had been thinking that securities & savings held in a TFSA - including all their gains, dividends, distributions & interest - would be exempt from taxable income, in that final income tax calculation for a deceased person.

but some posts in this thread seem to be suggesting that a TFSA gets fully taxed as income, just like an RRSP or RRIF, if a taxpayer is so unfortunate as to be holding a TFSA on the day he passes away.

how could this be? this does not make sense to me. It would mean that aging taxpayers should totally withdraw & collapse their TFSAs during the year or years prior to their deaths, in order to truly benefit from the "tax-free" aspect.


----------



## kcowan (Jul 1, 2010)

humble_pie said:


> but some posts in this thread seem to be suggesting that a TFSA gets fully taxed as income, just like an RRSP or RRIF, if a taxpayer is so unfortunate as to be holding a TFSA on the day he passes away.


The spouse can add it to their own TFSA as added contribution room. Anyone else pays tax based on its value when received using ACB at the time of death. With probate and other executor delays, this might be multiple years.


----------



## AltaRed (Jun 8, 2009)

The entire contents of a TFSA are tax free all the time (forever). It is just that when a taxpayer dies, and a surviving spouse is not a successor holder or a beneficiary, the TFSA ceases to exist as a tax free entity as of the date of death. From that point onward, a beneficiary of the TFSA (whether a non-spouse or an estate), technically owns the assets held by the TFSA and they are no different than those in a taxable account. Between the time of the date of death of the taxpayer and the distribution of the assets from the TFSA to beneficiaries, any income and/or capital gains/losses from those assets (using market value as ACB on the date of death) are taxable in the hands of the beneficiary....even if they have not yet been distributed. In most cases, the assets of the TFSA can be distributed fairly quickly, i.e. as soon as the financial institution is satisfied that the taxpayer is indeed dead and the person purporting to the be the executor is indeed the executor.


----------



## humble_pie (Jun 7, 2009)

alas guys we're not quite on the same page

i was inquiring about whether the entire content of a tax-free account - its gains, dividends, distributions, interests & other assets - is deemed to be tax-free in the final tax return that has to be prepared for every deceased person, as of the day of his death. 

his executor is charged with the duty of preparing that final tax return. Any taxes owing will be paid out of the estate.

what i would love to hear is a) confirmation that the TFSA in its entirety will be exempt from taxation in that final income tax return of a deceased party; also b) there must be a form on which an executor sets forth some details about the deceased's TFSA, even though hopefully it won't be taxed; does anyone happen to have the name of that form?

as for what happens with heirs & their tax issues with what they inherit, ok that's another story ...


----------



## AltaRed (Jun 8, 2009)

humble_pie said:


> alas guys we're not quite on the same page
> 
> i was inquiring about whether the entire content of a tax-free account - its gains, dividends, distributions, interests & other assets - is deemed to be tax-free in the final tax return that has to be prepared for every deceased person, as of the day of his death.
> 
> ...


Thought I answered it, albeit not directly.... 
a) A TFSA has no impact on a deceased's Final T1 return nor is there any mention of it on a Final T1. It is as if it never existed, and 
b) no special form from a CRA perspective, but the executor should keep a copy of the market value of the assets as of the date of death, as proof of ACB of assets to beneficiaries. I got the discount broker to put together a statement of those values for the estate files to cover my butt as executor.


----------



## humble_pie (Jun 7, 2009)

AltaRed said:


> Thought I answered it, albeit not directly....
> 
> a) A TFSA has no impact on a deceased's Final T1 return nor is there any mention of it on a Final T1. It is as if it never existed, and
> 
> b) no special form from a CRA perspective, but the executor should keep a copy of the market value of the assets as of the date of death, as proof of ACB of assets to beneficiaries. I got the discount broker to put together a statement of those values for the estate files to cover my butt as executor.



oh thankx, b) is what i'd hoped to hear about.

isn't it astonishing that the bureaucrats haven't yet thought up a form for filing, though

.


----------



## Eclectic12 (Oct 20, 2010)

humble_pie said:


> There is a technical question re TFSAs & final tax return of a deceased person.
> 
> up to now, i had been thinking that a TFSA, if not bequeathed to a spouse, is considered to be fully withdrawn/collapsed as of the date of death. Therefore i had been thinking that securities & savings held in a TFSA - including all their gains, dividends, distributions & interest - would be exempt from taxable income, in that final income tax calculation for a deceased person\
> 
> but some posts in this thread seem to be suggesting that a TFSA gets fully taxed as income, just like an RRSP or RRIF, if a taxpayer is so unfortunate as to be holding a TFSA on the day he passes away ...


The articles I have seen is that for non-qualified beneficiaries who do not take over ownership and need TFSA contribution room to move the $$ into their own RRSP - unlike the RRSP, the collapse at DOD sets the withdrawal limit that after which, taxes are assessed.

This link https://www.canada.ca/en/revenue-ag...h-a-tfsa-holder/designated-beneficiaries.html has an example where $11K is the FMV at DOD, $200 of income was earned after DOD so that when wound up, $11.2K was paid out but only $200 is taxable.

Should the beneficiary be a successor holder or a qualified person in a justification that considers being named beneficiary enough (i.e. requirement is to be qualified + named as beneficiary) then no taxes are assessed regardless of income made past the DOD. The full $$ can be rolled into one's own TFSA without using TFSA contribution room. 

The non-qualified beneficiary or spouse that was not named successor holder in a justification that requires this designation can only put into their own TFSA what they have contribution room for.




humble_pie said:


> ... how could this be? this does not make sense to me. It would mean that aging taxpayers should totally withdraw & collapse their TFSAs during the year or years prior to their deaths, in order to truly benefit from the "tax-free" aspect.


AFAICT - those who say this have it half right. The TFSA has to be collapsed if one is not a successor holder or equivalent. 

Which does not change that whatever the FMV was at DOD is still Canadian tax free - only the growth is taxed in the beneficiaries hands.


Cheers


----------



## Eclectic12 (Oct 20, 2010)

humble_pie said:


> alas guys we're not quite on the same page
> 
> i was inquiring about whether the entire content of a tax-free account - its gains, dividends, distributions, interests & other assets - is deemed to be tax-free in the final tax return that has to be prepared for every deceased person, as of the day of his death ... what i would love to hear is a) confirmation that the TFSA in its entirety will be exempt from taxation in that final income tax return of a deceased party;


Confirmed ...


> A designated beneficiary will not have to pay tax on payments made out of the TFSA, as long as the total payments don't exceed the fair market value (FMV) of all the property held in the TFSA at the time of the holder's death.


https://www.canada.ca/en/revenue-ag...h-a-tfsa-holder/designated-beneficiaries.html

Notice that it is the designated beneficiary who has to pay the tax on what is over the FMV at DOD - not the estate.






humble_pie said:


> also b) there must be a form on which an executor sets forth some details about the deceased's TFSA, even though hopefully it won't be taxed; does anyone happen to have the name of that form?


The form mentioned so far is a T4A showing the over FMV amount in box 134 "Tax-Free Savings Account (TFSA) taxable amount" in the "Other information" section. 

My guess is that since the FI knows:
a) the value of the TFSA at DOD 
b) the beneficiary or successor holder on file
and c) will have been notified of the DOD by the exeuctor
the computers take care of it.


I haven't talked to anyone acting as an executor for an estate with a TFSA yet so it is a guess on my part.




humble_pie said:


> oh thankx, b) is what i'd hoped to hear about.
> isn't it astonishing that the bureaucrats haven't yet thought up a form for filing, though


Why over complicate it when the FI has everything they need to sent the beneficiary a T4A form?


Cheers


*PS*
Unless the over FMV is less than $50, I would expect the same reporting to CRA that happens for employers T4 forms or T5 forms via computer would catch any beneficiaries who did not receive the T4A or ignored it.

Or to put it another way, an existing form as well as reporting procedure has been leveraged.


----------



## kcowan (Jul 1, 2010)

Eclectic12 said:


> Notice that it is the designated beneficiary who has to pay the tax on what is over the FMV at DOD - not the estate.


and is not included in the estate for probate calculations.


----------



## AltaRed (Jun 8, 2009)

Eclectic12 said:


> The form mentioned so far is a T4A showing the over FMV amount in box 134 "Tax-Free Savings Account (TFSA) taxable amount" in the "Other information" section.
> 
> My guess is that since the FI knows:
> a) the value of the TFSA at DOD
> ...


None of this is relevant to the estate itself, i.e. the Final T1 tax return. It is really very simple from the estate's perspective.

What happens to the assets AFTER date of death depends on who is the beneficiary and in what form. It was not complicated in the estate I recently handled that included a TFSA.
1) If the estate is the beneficiary, the TFSA dies and all the assets form part of the testamentary trust, and the assets are also included in probate. All income, cap gains, etc. are part of the testamentary trust with taxes either paid by the trust in a T3 trust return until distributed, or flowed through to ultimate beneficiaries by a T3 tax slip. How the executor handles this depends in part on tax rates, i.e. as part of the GRE (Graduated Rate Estate rules) as the change is migrated to full marginal tax rate trusts...or flowed through to the beneficiary. At one time, it was sometimes beneficial to have the trust pay the income taxes as a 'separate person' but that is changing over a period of years starting 2016 to highest personal marginal tax rates to prevent sheltering of income in testamentary trusts.
2) If a surviving spouse is a successor holder, the surviving spouse simply takes ownership of the TFSA including any unused contribution room using the rollover election in the ITA.
3) If a surviving spouse is a plain vanilla beneficiary, the surviving spouse can roll over the TFSA assets into his/her own TFSA without any other consequences... like a RRSP


----------



## Eclectic12 (Oct 20, 2010)

Re: None of this is relevant to the estate itself.

I guess it depends on one's POV ... that the estate has nothing to do with any TFSA taxes, just the beneficiary I would have thought was relevant.


Either way - the details of the process for the beneficiary that is liable for taxes was in response to the speculation that the bureaucrats had not required a form. It was not intended to take away from the point already made that the TFSA makes no difference to the final estate return. I had assumed that by saying "Notice that it is the designated beneficiary who has to pay the tax on what is over the FMV at DOD - not the estate" was reinforcing the point.


Thanks for the detailed response based on a settled estate.

Are you sure for Number 3?

These articles below that say the surviving spouse named as a beneficiary means the TFSA rollover that does not use TFSA contribution room is capped at FMV. Just like a regular TFSA beneficiary, above FMV will be taxable to the spouse.

https://www.theglobeandmail.com/glo...nt-accounts-requires-thought/article33987944/
http://www.advisor.ca/tax/tax-news/tfsa-designations-may-cause-estate-planning-problems-183045


Quebec, of course, is different where the TFSA beneficiary and/or successor holder has to be named in the will.


With time going by with refinements happening - I am finding references to some FIs providing an option to name a TFSA beneficiary, should both the owning spouse and the successor holder were to die at the same time.


Cheers


Cheers

https://www.theglobeandmail.com/glo...nt-accounts-requires-thought/article33987944/


----------



## AltaRed (Jun 8, 2009)

Eclectic12 said:


> Are you sure for Number 3?
> 
> These articles below that say the surviving spouse named as a beneficiary means the TFSA rollover that does not use TFSA contribution room is capped at FMV. Just like a regular TFSA beneficiary, above FMV will be taxable to the spouse.
> 
> ...


Yes, I am sure.... for the FMV of the TFSA at the time of death that can be rolled over. Having a debate about what the beneficiaries may have to pay in tax later due to non-sheltered TFSA income/capital growth is a different matter entirely. Confusion reigns when it is said 'the beneficiary has to pay tax on the TFSA proceeds'. That is completely untrue. 

What happens later with the assets in the beneficiary's hands (whether rolled over (spouse) or collapsed (non-spouse) depends on the type of beneficiary and who is the beneficiary.... as the advisor.ca article articulates in great clarity. What I said in post #13 and all subsequent posts stands.


----------



## humble_pie (Jun 7, 2009)

AltaRed said:


> Yes, I am sure.... for the FMV of the TFSA at the time of death that can be rolled over. Having a debate about what the beneficiaries may have to pay in tax later due to non-sheltered TFSA income/capital growth is a different matter entirely. Confusion reigns when it is said 'the beneficiary has to pay tax on the TFSA proceeds'. That is completely untrue.
> 
> What happens later with the assets in the beneficiary's hands (whether rolled over (spouse) or collapsed (non-spouse) depends on the type of beneficiary and who is the beneficiary.... as the advisor.ca article articulates in great clarity. What I said in post #13 and all subsequent posts stands.



i do agree with altaRed. Thankx very much for explaining details of how he actually handled a TFSA as executor of a recent estate.

assets of a deceased person are always evaluated at fair market value (FMV) as of the date of death (DOD.) That evaluation stands as the Rubicon, there's no crossing back. Realized changes in value after the DOD - ie crystallized changes in value due to sale of an asset - will always be taxable in the hands of the heirs.

returning to the Rubicon - which is the aggregate of values of all the assets a deceased party owned at the time of his death - i am left wondering why some might opine that a TFSA bequeathed to one specific heir therefore means a tax or financial penalty that will have to be borne collectively by all the other heirs?

if there is no taxation of a TFSA in a deceased's final DOD tax return, surely this means that there is no tax penalty arising strictly from a TFSA presence in the estate inventory of assets. Which means that other heirs would not suffer any unequal tax burden ...

.


----------



## AltaRed (Jun 8, 2009)

humble_pie said:


> i am left wondering why some might opine that a TFSA bequeathed to one specific heir therefore means a tax or financial penalty that will have to be borne collectively by all the other heirs?
> 
> if there is no taxation of a TFSA in a deceased's final DOD tax return, surely this means that there is no tax penalty arising strictly from a TFSA presence in the estate inventory of assets. Which means that other heirs would not suffer any unequal tax burden ...
> 
> .


There is no direct tax penalty to 'other' beneficiaries of an estate simply because of a TFSA being directed to a specific beneficiary. What be the issue is the estate will have to pay income tax on the collapse of a RRSP or the deemed disposition of taxable account assets, and the net proceeds are therefore less.

Example: TFSA is worth $70k on DOD and is bequeathed to beneficiary A. The rest of the assets in a taxable account may be $140k going to beneficiaries B and C. Trouble is, cap gains on that account might reduce it to $120k net proceeds and thus beneficiaries B and C only get $60k each. Is that fair? Don't know if the question is relevant since a testator can bequeath what and how s/he wishes -- even if the testator didn't appreciate how the tax treatment could result in different treatment. I'd tell them... quit whining!


----------



## humble_pie (Jun 7, 2009)

^^


thanking you once again for the explanation.

may we never have to deal with such a lopsided situation. I guess the moral of the story goes Never bequeath a registered plan to any particular named beneficiary other than a spouse, Instead include it with the residue of the estate.

at the same time, a useful exercise to have begun years before demise is to gradually raise the ACB of non-registered holdings up to a ballparkish level, so that the final capital gains tax bite will be as small as possible.

not sure how to alleviate the tax consequences of a big RRSP or RRIF that suddenly becomes 100% taxable upon the testator's death, though. Two small cures might go like this: a) live long enough to deplete the RRIF down to zip; or b) build a substantial charitable donation into the will.


----------



## AltaRed (Jun 8, 2009)

humble_pie said:


> may we never have to deal with such a lopsided situation. I guess the moral of the story goes Never bequeath a registered plan to any particular named beneficiary other than a spouse, Instead include it with the residue of the estate.


Or leave it 'equally to all beneficiaries. Especially appropriate for a large RRSP/RRIF in at least some provinces like BC and ON with notorious probate fee schedules.


----------



## twa2w (Mar 5, 2016)

Wow, lets simplify it

There are 5 things that can happen to a TFSA at death.

1) tfsa has a spouse named as successor annuitant. The TFSA effectively changes ownership to the spouse. It does not affect her current contribution limits. No effect on estate taxation. Depending on province, may have to be reported on probate, but AFAIK, no probate fees accrue. Note some provinces require all assets be reported on probate application even though exempt.

2) tfsa has spouse named as beneficiary. Spouse can take it as a beneficiary with consequences noted below in #3. Most likely they will elect a rollover under the same provisions as a successor annuitant. ( not all provinces have succesdor A). This is called a designation of exempt beneficiary) Again no effect on estate tax. But this can only be done for FMV at date of death so any gain loss between date of death and rollover will be for tax account of recipient. Does not affect recipients contribution limits.

3) tfsa has designated beneficiary other than spouse or commonlaw. The tax free value of the TFSA is locked in at date of death. That amount passes tax free to the beneficiary(ies). Any increase or decrease in the value of the TFSA after DOD, but before distribution, is responsibilty of the beneficiary. No effect on tax for final return or estate.

4) TFSA has no beneficiary. The tax free value of TFSA is set at date of death. Any gain or loss in the value of the TFSA between date of death and when TFSA is closed and distributed is taxable in the hands of the estate. Amount of TFSA is reported for probate.

5) TFSA with registered charity as beneficiary. TFSA must be transferred to charity within 36 months from date of death. Any gain or loss in value after death goes to charity so no effect on taxation AFAIK other than final tax return can be amended to reflect charitable donation.

Flies in the ointment so to speak. 

If the deceased was overcontributed and subject to the 1% penalty.
Can't rollover any excess contribution amount under successor annuitant or exempt beneficiary. So estate responsible for removing excess and penalties and a crap liad of paperwork likely :-( 

It is late and I am typing on a tiny tablet. So I I can only see about 3 lines at a time. Please correct me if I get anything offside. Hopefully not many Grammer errors.


----------



## humble_pie (Jun 7, 2009)

twa2w said:


> Wow, lets simplify it





the thing is, any TFSA in an estate is definitely a complication. AltaRed has set forth approaches to different aspects of TFSA testamentary distribution that are as simple as possible. Clear, transparent, helpful. 

coming from a province that doesn't probate wills drawn in english form, i found altaRed's last tidbit - about dividing RRSP/RRIF pro rata among all the heirs as a specific bequest - in order to keep it out of probate in applicable provinces - is downright delicious.

thankx to all for their insightful contributions to the thread.


.


----------



## Eclectic12 (Oct 20, 2010)

AltaRed said:


> ... Confusion reigns when it is said 'the beneficiary has to pay tax on the TFSA proceeds'. That is completely untrue ...


Agree completely ... what I am saying is that the FMV is tax free and that anything above this is taxed via the beneficiary reporting it from the T4 form.
A spouse may have everything tax free ... if the right designation is done.


Cheers


----------



## Userkare (Nov 17, 2014)

Wow, that was a long winded discussion. So hopefully not beating a dead horse, but just to recap...

In the estate for which I am the trustee, there was a TFSA, an RRSP and an RRIF. 
There was no will, and by the laws of Ontario, a single beneficiary; that simplifies the math. 
There was a named beneficiary, who was not a relative or an estate beneficiary, for the RRSP and RRIF, but not the TFSA.
The full amount of the TFSA only, not the RRSP or RRIF was declared for the Ontario Estate Administration Tax.
The named beneficiary of the RRSP + RRIF got the full amount of these accounts with no tax implications. The TFSA was collapsed into taxable category.
The bank issued a T4A for the entire amount of the RRSP and RRIF in the name of the deceased as if they had been withdrawn at DOD. i.e. this is taxable to the deceased.
Between the DOD and when the court finally ( 4 months later ) issued the appointment as estate trustee, there was a gain in the value of the former TFSA.
The bank issued a T4A for the amount of that gain in the name "the estate of ---". Box 134 as has been mentioned.
The RRSP and RRIF are claimed on the final T1, and the estate pays the required tax.
There's no mention of the TFSA in the deceased's final T1.
The estate T3 claims the net gain from the former TFSA T4A, and pays the tax on that gain.
Now, there is less money in the estate from paying the final T1 and T3. This gets 'distributed' to the single beneficiary.

So basically, the beneficiary paid the taxes on the RRSP + RRIF, although someone else, not even an estate beneficiary, received the full amount - tax free!


phew!


----------



## AltaRed (Jun 8, 2009)

Userkare said:


> So basically, the beneficiary paid the taxes on the RRSP + RRIF, although someone else, not even an estate beneficiary, received the full amount - tax free!


That process makes sense as described. In the case of the estate beneficiary being burdened with the income taxes, that sort of thing happens more often than one might assume. In this case, without a Will (how dumb can one be?), the estate bears the burden of income taxes from RRSP/RRIF collapse. 

A proper Will could have specified that the beneficiaries of the RRSP/RRIF gets 'net proceeds' after taxes, OR better yet, have done a better job of assigning beneficiaries in the first place, i.e. a portion of each type of asset (account) to each beneficiary. Imagine an estate with $500k in RRSP/RRIF (with one set of beneficiaries) and $100k in other assets (to a different set of beneficiaries). The latter will end up with nothing since these assets will need to used (and then some) to pay the income taxes on the RRSP/RRIF.

Added: A classic case of why it is important to engage a professional in Will preparation, a theme I have repeated ad nauseam on this forum.


----------



## Eclectic12 (Oct 20, 2010)

The estate with one set of beneficiaries for the RRSP/RRIF and a taxable account to another set of beneficiaries is simplified into two separate brothers in this article.
http://www.advisor.ca/tax/estate-planning/how-to-destroy-an-inheritance-54389 

Pretty similar points as AltaRed has made.

It also adds that this sort of imbalance can lead to family strife .... if not a claim against the estate in an attempt to fix the imbalance.


Chees


----------



## canew90 (Jul 13, 2016)

AltaRed said:


> There is no direct tax penalty to 'other' beneficiaries of an estate simply because of a TFSA being directed to a specific beneficiary. What be the issue is the estate will have to pay income tax on the collapse of a RRSP or the deemed disposition of taxable account assets, and the net proceeds are therefore less.
> 
> Example: TFSA is worth $70k on DOD and is bequeathed to beneficiary A. The rest of the assets in a taxable account may be $140k going to beneficiaries B and C. Trouble is, cap gains on that account might reduce it to $120k net proceeds and thus beneficiaries B and C only get $60k each. Is that fair? Don't know if the question is relevant since a testator can bequeath what and how s/he wishes -- even if the testator didn't appreciate how the tax treatment could result in different treatment. I'd tell them... quit whining!


Exactly how we directed in our wills. Grandkids get the TFSA and the rest distributed, fairly evenly, to other dependents. Sell RRIF's, calculate and pay tax, including CG on Non-Reg then balance either transfer In Kind or sell and distribute. The decision about distribution is ours, not theirs.


----------



## twa2w (Mar 5, 2016)

I am sure you have checked this but if other folks plan on this, just make sure your RIF does not have an old beneficiary designation that is still in place. 

Always a good idea to check beneficiary designations on things like RIFs, TFSA, life insurance when reviewing wills.

I was always surprised at how many folks had no clue who they had designated. I would say, lets double check your beneficiary designation. Oh don't bother I am sure it is so and so. You check anyway and they are shocked. Oh s**t, I divorced her 10 years ago.
Some of this is old sloppy paperwork at your bank or broker from when things were done on paper, some is people just assuming they updated these things but didn't, or they assume it automatically transfers from their RSP to their RIF. It does not. Or they think the will overrides the designation on the RSP. It may or may not depending on the wording and the province.


----------



## Retired Peasant (Apr 22, 2013)

- no beneficiary designation on TFSA
- will leaves TFSA to Joe, who is not a spouse
-Joe has no room in his TFSA
- Does Joe receive amount based on value of TFSA on DOD, or does he receive value on date of distribution.


----------



## humble_pie (Jun 7, 2009)

Retired Peasant said:


> - no beneficiary designation on TFSA
> - will leaves TFSA to Joe, who is not a spouse
> -Joe has no room in his TFSA
> - Does Joe receive amount based on value of TFSA on DOD, or does he receive value on date of distribution.




(i think) value as of DOD

presumably the cash has sat in the estate ever since the original TFSA assets were sold. If said cash earned interest - ie there was a variance between amount DOD vs amount date of distribution - this interest would be flowed through to Joe on the estate tax return, so everything should be tickety-boo.

there are some real pros contributing to this thread, if my guess is wrong i'd be happy to be corrected


----------



## AltaRed (Jun 8, 2009)

Retired Peasant said:


> - no beneficiary designation on TFSA
> - will leaves TFSA to Joe, who is not a spouse
> -Joe has no room in his TFSA
> - Does Joe receive amount based on value of TFSA on DOD, or does he receive value on date of distribution.


Technically, the assets of the TFSA become part of the estate first and subject to probate fees, etc. The executor should hold them separately until probate has cleared and income taxes* are paid. Then distribute the residual of the assets, whatever value they are at the time, to the beneficiary (that will have changed due to capital gains/losses, investment income). Remember the TFSA ceases to exist on the DOD and thus effectively becomes just another taxable account.

*Added: I have not done one of those, so an outstanding question that I am not certain of is who is responsible for income taxes due on the assets of the former TFSA, i.e. the estate or the beneficiary? Twa2w probably knows.


----------



## OnlyMyOpinion (Sep 1, 2013)

That's a weird scenario. Why specify Joe to receive the TFSA within the will given the complications that might entail (estate owing taxes on other assets and running short of funds, etc.). Why not just list Joe as the beneficiary on the TFSA itself and keep the proceeds out of the estate.
Normally I would expect the will to be silent as to specific accounts like a TFSA and they would just become part of the estate if beneficiaries weren't set up on the account itself.

Twa2w's suggestion that you check the beneficiary/successor status of all of your registered accounts is *very good advise*.

Also, know that a Power of Attorney cannot change a beneficiary designation. So if for example, a parent dies and the other parent does not revise their TFSA to remove their dead spouse and designate someone else, a child acting as PofA cannot change it and it will eventually go to that other parent's estate.


----------



## humble_pie (Jun 7, 2009)

AltaRed said:


> an outstanding question that I am not certain of is who is responsible for income taxes due on the assets of the former TFSA, i.e. the estate or the beneficiary? Twa2w probably knows.



not Twa2 here but thinking that it would be the beneficiaries via their pro-rata tax slips from the estate T3, which would flow income through to them. The TFSA being wound up & surviving only as a bunch of non-registered assets or as cash, just like other stuff in the estate.

at least that is how i recall doing it for the 'rents here in quebec.


----------



## AltaRed (Jun 8, 2009)

humble_pie said:


> not Twa2 here but thinking that it would be the beneficiaries via their pro-rata tax slips from the estate T3, which would flow income through to them. The TFSA being wound up & surviving only as a bunch of non-registered assets or as cash, just like other stuff in the estate.
> 
> at least that is how i recall doing it for the 'rents here in quebec.


Now that I have finished my morning coffee, I would also proportion T3 income taxes (or flow through T3 tax slips to beneficiaries) based presumably on percentage of contribution to taxable income. It won't be perfect due to potential complications on 'share' of eligible dividend income and DTCs, and different proportions of any cap gain cash distributions from mutual funds and ETFs, but close. As OMO said, this would potentially be a weird scenario but people do weird things despite of, or through absence of, proper legal advice. It's the DIYers doing their own Wills that are most likely to create perfect storms. 

And further thinking about it, it would be best for this kind of T3 testamentary trust to work on 'flow through basis' for the various types of income to the specific beneficiaries.


----------



## humble_pie (Jun 7, 2009)

AltaRed said:


> Now that I have finished my morning coffee ...




on a different tack, do you guys have "rights and things" tax-exempt dividends in the other provinces? 

these belong only to the final tax return of the late dearly departed, though, not to any estate tax return which we have just been discussing (i'm rambling, sorry)

as best i can recall, "rights and things" include dividends that have been declared but not yet paid. For some mysterious reason they are exempt from that final income tax calculation.

there are other tax-exempt "rights and things" but abicr they didn't apply to either of the 'rents. I think they were farm animals? cows? cattle? the rights and things i mean, not the 'rents


----------



## twa2w (Mar 5, 2016)

TFSA's are fairly recent so much of the procedural processes to do with estates are still new and likely subject to intrepretation and change.( and court interpretation). 
I should have mentioned in my previous post about checking beneficiaries, to also include checking marriage, separation and cohab agreements, annuities, work benefits, group insurance and pensions, some critical illness contracts( refund of premiums) as well as some segregated funds. In conjuntion with your will.
The wording in a will can sometimes negate a beneficiary designation. In some jurisdictions a beneficiary designation in a will overrides a designation on a policy. In others the opposite is true. Sometimes it depends on the dates and wording.
This link is old and may not apply to all jurisdictions but certainly should give you the idea of the trouble you can get into http://www.advisor.ca/insurance/life/preventing-beneficiary-disputes-3696

Maybe things have changed since I was in the business but unless it was a complex estate with trusts etc, the estate paid all the income tax on income earned by the estate since DOD, and distributed net of tax after clearance cert. Simpler and cleaner for executor and benies.
I realize some tax rules on trusts have changed somewhat but on most estates and with most beneficiaries not enough to make a huge difference.


----------



## AltaRed (Jun 8, 2009)

A 'rights and things' tax return is indeed for income earned but not yet received. The most common ones for seniors is CPP and OAS that is earned in the month of death but not paid until end of month. I filed a 'rights and things' return for both of those on my mother's estate. Another common one (as I understand it) would be dividends from a business, CCPC, etc.


----------



## twa2w (Mar 5, 2016)

OnlyMyOpinion said:


> ....
> 
> Also, know that a Power of Attorney cannot change a beneficiary designation. So if for example, a parent dies and the other parent does not revise their TFSA to remove their dead spouse and designate someone else, a child acting as PofA cannot change it and it will eventually go to that other parent's estate.


True a POA cannot change a beneficiary designation but your example is incorrect unless I misunderstand you.

If I leave my RSP and TFSA to my wife via beneficiary designation and she predeceases me and I do not change the designation, the proceeds of my TFSA and RSP, form part of the residue of my estate.( they do not go to my wifes estate)
Now in the case of me dying today, and she dies a week later, then the TFSA and RSP, would go to her estate. Unless of course there is a clause in my will re any beneficiary has to survive me by 30 days.


----------



## Retired Peasant (Apr 22, 2013)

OnlyMyOpinion said:


> That's a weird scenario. Why specify Joe to receive the TFSA within the will given the complications that might entail (estate owing taxes on other assets and running short of funds, etc.). Why not just list Joe as the beneficiary on the TFSA itself and keep the proceeds out of the estate.


Who knows why they did it? I just have to deal with it. So TFSA is considered collapsed into non-registered on DOD (even though this can't actually happen until probate is granted and letters direction can be sent).
Estate pays probate and any tax owing, and Joe gets $ to the tune of whatever the value of the TFSA was on DOD.


----------



## AltaRed (Jun 8, 2009)

Retired Peasant said:


> Who knows why they did it? I just have to deal with it. So TFSA is considered collapsed into non-registered on DOD (even though this can't actually happen until probate is granted and letters direction can be sent).
> Estate pays probate and any tax owing, and Joe gets $ to the tune of whatever the value of the TFSA was on DOD.


I disagree. The FI would simply call the assets "Estate of Joe XXX" and issue account statements to the executor every month/quarter, etc. The assets would continue to do what they do on the market as non-registered assets as part of the testamentary trust, until such time the assets can be distributed AFTER probate and AFTER a Letter of Direction is issued by the executor. 

During the interim, the FI would issue tax slips each year and the executor in turn would issue a corresponding T3 to the eventual beneficiary. Joe does not eventually get the value of the TFSA at DOD. He gets whatever value they are as of the date of distribution. Don't know how to make that more clear.


----------



## OnlyMyOpinion (Sep 1, 2013)

twa2w said:


> True a POA cannot change a beneficiary designation but your example is incorrect unless I misunderstand you.
> If I leave my RSP and TFSA to my wife via beneficiary designation and she predeceases me and I do not change the designation, the proceeds of my TFSA and RSP, form part of the residue of my estate.( they do not go to my wifes estate)
> Now in the case of me dying today, and she dies a week later, then the TFSA and RSP, would go to her estate. Unless of course there is a clause in my will re any beneficiary has to survive me by 30 days.


Sorry, I meant it as you say but wasn't very clear in my wording.

Now, changing the example slightly, but regarding the 30 day clause, is it my understanding that this clause in a will does not apply to registered accounts where the beneficiary is alive at the DOD - they are dealt with outside of the will and in essence 'immediately' become the property of the benficiary, even if they were to die the next day (then of course those assets would pass to the estate of that beneficiary-who-just-died). Am I correct in this?

I ask because the '30 days' was an excuse given to us several times by the bank for why they were slow assigning a TFSA to the surviving spouse and for revising a joint trading account to reflect only the surviving spouse. ISTM the 30 day survivor clause in the will should have no bearing on these two accounts - they were just using it as an excuse. In the end, their 'Estate Dept' took nearly 4 months before we got confirmation in hand that the ownership of the accounts had been changed.


----------



## humble_pie (Jun 7, 2009)

AltaRed said:


> I disagree. The FI would simply call the assets "Estate of Joe XXX" and issue account statements to the executor every month/quarter, etc. The assets would continue to do what they do on the market as non-registered assets as part of the testamentary trust, until such time the assets can be distributed AFTER probate and AFTER a Letter of Direction is issued by the executor.
> 
> During the interim, the FI would issue tax slips each year and the executor in turn would issue a corresponding T3 to the eventual beneficiary. Joe does not eventually get the value of the TFSA at DOD. He gets whatever value they are as of the date of distribution. Don't know how to make that more clear.




^^ this is how it's always worked for my fam in que

income was flowed through to heirs via estate T3s & their tax slips. Heirs paid income tax. In several cases heirs received T3s & were liable for income tax on their pro-rata portion of the estate income, even before any distributions could be made. Nobody ever had to get a bank loan.


----------



## twa2w (Mar 5, 2016)

OnlyMyOpinion said:


> Sorry, I meant it as you say but wasn't very clear in my wording.
> 
> Now, changing the example slightly, but regarding the 30 day clause, is it my understanding that this clause in a will does not apply to registered accounts where the beneficiary is alive at the DOD - they are dealt with outside of the will and in essence 'immediately' become the property of the benficiary, even if they were to die the next day (then of course those assets would pass to the estate of that beneficiary-who-just-died). Am I correct in this?
> 
> I ask because the '30 days' was an excuse given to us several times by the bank for why they were slow assigning a TFSA to the surviving spouse and for revising a joint trading account to reflect only the surviving spouse. ISTM the 30 day survivor clause in the will should have no bearing on these two accounts - they were just using it as an excuse. In the end, their 'Estate Dept' took nearly 4 months before we got confirmation in hand that the ownership of the accounts had been changed.


I am not sure on this. It may depend on the jurisdiction and I suppose it will have to be tested in court. Even the way a will is worded may affect this. Incorrect wording in a will can potentially override all beneficiary designations.
It could be a reasonable argument that the testators intention in the 30 day clause would extend to TFSA and RSP. Not sure if this argument could be extended to life insurance.
I don't believe this has been tested in court, so I think the bank would naturally err on the side of caution. And I have no doubt they, at some point, reviewed this process with their solicitors. I have heard, but not confirmed, that insurance companies will not pay out until at least 30 days after death.
Yes, banks, brokers etc can be extremely slow in processing estates for a variety of reasons.


----------



## Retired Peasant (Apr 22, 2013)

AltaRed said:


> Don't know how to make that more clear.


I was looking at twa2w's post of 'keeping it simple'


twa2w said:


> ... unless it was a complex estate with trusts etc, the estate paid all the income tax on income earned by the estate since DOD, and distributed net of tax after clearance cert. Simpler and cleaner for executor and benies.


----------



## AltaRed (Jun 8, 2009)

Retired Peasant said:


> I was looking at twa2w's post of 'keeping it simple'


Two issues I have with your post #52. Firstly, Joe doesn't get what the TFSA is worth on DOD... only what is available on date of distribution. Secondly, if the beneficiaries of the former TFSA are different from the beneficiaries of the rest of the estate, why should the rest of the estate pay all the income taxes on all the investment income received, including that from the assets of the TFSA that have been held since DOD?

Another factor.... The executor could keep things simple by having the 'rest' of the estate paying all the income taxes from the testamentary trust...until distribution has occurred, but since 2016, the rules have changed on estate taxation. Testamentary trusts qualify for GRE (graduated rate estates) where taxation levels are progressively pro-rated over 36 months between the old 'personal' rates to highest marginal rate. The purpose is to cause executors to wrap up estates sooner rather than later because high net worth individuals have been using testamentary trusts as an income splitting tool. Ottawa is slamming the door shut on that. It will be more important to pass through testamentary trust income to the beneficiaries through tax slips, i.e. taxable in ultimate beneficiary hands rather than the trust.

When I last dealt with a Final T1 Return and a T3 testamentary trust, it was for tax year 2015. Graduated rate estates (GRE) taxation started in 2016 http://www.advisor.ca/tax/tax-news/everything-you-need-to-know-about-graduated-rate-estates-226266

If I was an executor now, I would not have the estate pay the income taxes. I would pass the investment income through to the ultimate beneficiaries for taxation in their hands. It is getting way too complicated.


----------

