# rrsp withdrawl



## rinoscar (Jan 26, 2010)

Hello,

The situation: About 10 years ago my father passed away. He had rsp's that got rolled over to my mother. She is now retired and has assets over 100K in rsp's, gic and saving accounts. Approx 40 000 are in rsp's, knock on wood, if my mother would pass away while this 40K is still in rsp's, what will happen to the rsp?

Will it have to be liquidated? If so, how taxes will be taken from it, or at what tax rate?

thanks


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## Karen (Jul 24, 2010)

It depends on whether your mother has named a beneficiary to her RRSP; if she has, the RRSP will be transferred to the beneficiary who will decide whether or not to liquidate it. If there is no beneficary named (or if her estate is named the beneficiary), the RRSP will be transferred to your mother's estate. However, it's important for your mother to be aware that, if she names a beneficiary, it is the estate that will owe the taxes due on the RRSP, not the beneficiary, and that should be taken into account when she decides how to leave her assets when she dies.


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## rinoscar (Jan 26, 2010)

Hi Karen,

I have never understood "estate"? can you please elaborate.


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## warp (Sep 4, 2010)

Here is the simple answer....

1) unless your Mother has a new spouse, or a disabled child, all the money in her RRSP, ( actually probably a RRIF now)....would have to be added to her income in the year of death, as if she withdrew the money right before she passed away. It cannot be "rolled over" to anyone else, these are the only two.
You can be the beneficiary of her RRSP or RRIF, but you will get only what's left after taxes

2) Its a good idea then to try and get the money OUT now, while shes alive, year by year , and hopefully pay minimal taxes on it. It's best, if you are without a spouse , to die with as little as possible in an RRSP, or RRIF, otherwise the government will pay a huge tax bite out of it, (especially if there is a big amount in the RRSP/RRIF).......whats left will then go to her heirs...( you).

Imagine a single senior person who has saved and invested all their lives, and die with, let's say $ 1 Million dollars ,in his/her RRSP/RRIF.
This amount will have to be added to his/her income in the year they die..and the government would take OVER $ 400,000 dollars in taxes. 
The rest would go to his/her heirs according to the will.

I have the same scenario with my Mother...and am working on the same solution.

With taxes, even a "simple" answer can be complicated..talk to an accountant for a few minutes on this, and save yourself some grief.


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## warp (Sep 4, 2010)

Let me clear up....I am working on this "problem" with my Mothers RRIF...

but she does NOT have anywhere near $ 1 Million dollars in it.

Just wanted to clear that up in case my last post was confusing.


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## rinoscar (Jan 26, 2010)

Thanks Warp,

It is still in her rrsp. She does not need the money from her rrsp, so I decided to leave it there until I am forced to moved it to a riff. Then a friend of a friend got "caught" by leaving money in a rsp and then the last parent past away and got hit by the taxes, so I want to avoid that.

I was thinking of moving the least possible amount possible to only pay the lowest tax bracket and then placing that cash either in a savings account or maybe a tfsa.


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## Karen (Jul 24, 2010)

> ...You can be the beneficiary of her RRSP or RRIF, but you will get only what's left after taxes


I don't think that's quite accurate, Warp, unless the OP is the beneficiary of both the RRSP (or RRIF) AND the estate. It's my understanding that the estate is responsible for paying the taxes due on the RRSP, leaving the beneficiary of the RRSP with the full amount in the RRSP. The example I have often read about is this scenario:

A parent leaves an estate of $200,000 cash and an RRSP worth $200,000. He/she wants to divide their assets equally between his two children, so he makes one child the beneficiary of the estate and the other the beneficiary of the RRSP, not realizing that the estate is required to pay the taxes due on the RRSP. So, unless the two children choose to do the decent thing and share the proceeds of both evenly, the one child would end up with $200,000 in the RRSP, and the other child would have the tax due on the RRSP (say $80,000) paid from his $200,000, leaving him with only $120,000.

Please let me know if I'm wrong about this, but I don't believe I am.



> Hi Karen,
> 
> I have never understood "estate"? can you please elaborate.


Rinoscar, the simple explanation is that an estate is the total of the assets that a person has when they die, which will be distributed according to the deceased person's will.


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## stardancer (Apr 26, 2009)

Karen said:


> A parent leaves an estate of $200,000 cash and an RRSP worth $200,000. He/she wants to divide their assets equally between his two children, so he makes one child the beneficiary of the estate and the other the beneficiary of the RRSP, not realizing that the estate is required to pay the taxes due on the RRSP. So, unless the two children choose to do the decent thing and share the proceeds of both evenly, the one child would end up with $200,000 in the RRSP, and the other child would have the tax due on the RRSP (say $80,000) paid from his $200,000, leaving him with only $120,000.
> 
> Please let me know if I'm wrong about this, but I don't believe I am.


That's how I always understood it also. IMO, since the estate has to pay the taxes anyways, the RSP/RIF should be left to the estate if there is no spouse or disabled child. The will can stipulate that all be divided equally, after taxes and bills are paid.


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## rinoscar (Jan 26, 2010)

Hi Karen,

if per say her will says all assets are to be divided by 2(son, daughter) then wouldn't both bear the burden of paying the taxes?


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## Karen (Jul 24, 2010)

If the son and daughter were the only beneficiaries of the will, it would amount to the same thing, but technically the executor of the estate would pay the taxes from the estate. And Stargzer if right in saying that in a case like this, it only makes sense to name the estate the beneficiary of the RRSP.



> Then a friend of a friend got "caught" by leaving money in a rsp and then the last parent past away and got hit by the taxes, so I want to avoid that.


I just noticed this comment and should explain that there is no way of avoiding being "hit by the taxes," as you put it. Only a surviving spouse or a disabled child are exempt from that requirement. Keep in mind that an RRSP is tax deferral plan, not a tax avoidance one, so the tax has to be paid on it at some point.


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## steve41 (Apr 18, 2009)

No. She pays the tax on death. The estate splits the after tax proceeds.


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## LBCfan (Jan 13, 2011)

But you can minimize taxes in a large RRSP/RIF by withdrawing the money over a period of years when you are not in the top tax bracket vs. leaving it to push you to the top bracket on your date of death return.


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## PF_Enthusiast (Jan 21, 2011)

Another avenue I haven't saw mentioned is once you/she rolls the RRSP into a RRIF, take into consideration the amount of money that will be withdrawn annually as a minimum withdrawl and estimate how much taxes will be owing if she lives until age X, then take out an insurance policy to pay the taxes that will be due. Incorporate it as part of her estate planning process. I understand that it's an additional expense (insurance premiums), but it will take care of taxes that are due after death.


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## cardhu (May 26, 2009)

Karen said:


> Please let me know if I'm wrong about this, but I don't believe I am.


You are correct. The beneficiary of an RRSP or RRIF gets the full amount, with no legal obligation to pay any taxes. 



stardancer said:


> IMO, since the estate has to pay the taxes anyways, the RSP/RIF should be left to the estate if there is no spouse or disabled child. The will can stipulate that all be divided equally, after taxes and bills are paid.


An RRSP that is passed directly to a beneficiary bypasses probate ... an RRSP that is part of the estate does not. 

This is more of an issue in some provinces than others, and even so, people should not make probate avoidance their first priority. 



rinoscar said:


> if per say her will says all assets are to be divided by 2(son, daughter) then wouldn't both bear the burden of paying the taxes?


No ... the beneficiary of an RRSP does not have any tax obligation* ... BUT ... the will can still control the end result by stipulating that the distribution of the net estate amount be adjusted to take the RRSP value into account, so that son and daughter each end up with the same amount. Doing that might be complex, though, and introduces more opportunities for dispute down the road. 

* except where the deceased’s estate does not have enough money to pay the tax owing ... in that case, CRA can go after the beneficiary.


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## cardhu (May 26, 2009)

rinoscar said:


> a friend of a friend got "caught" by leaving money in a rsp and then the last parent past away and got hit by the taxes, so I want to avoid that.


Yeah, the RRSP was designed for the specific purpose of generating income in retirement, and most of the time, that is how it functions best. Far too many people, I suspect, make the mistake of NOT taking income from it, and as a result end up with less-than-optimal performance. The RRSP will deliver optimal performance when the tax burden on withdrawal is kept as low as possible, and usually the way to do that is to allow the money to trickle out, in smallish increments, over as long a time period as possible. For as much as people gripe about the mandatory RRIF schedule, it actually saves many people from shooting themselves in the foot in exactly the way you describe. 

Personally, I wouldn’t bother with insurance ... there’ll always be more than enough money in the RRSP/RRIF to cover the taxes owing.


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## Karen (Jul 24, 2010)

steve41 said:


> No. She pays the tax on death. The estate splits the after tax proceeds.


Aren't you splitting hairs, Steve? Of course the proceeds of the RRSP are attributed to the deceased, but she's not alive to pay it; her executor includes it as income on her final tax return and pays the amount owing from her estate.


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## steve41 (Apr 18, 2009)

I guess what I am saying is that the RRSP is collapsed and taxed as one entity, and the resulting after tax proceeds are split between the 2 heirs. If the RRSP was split first and each heir received 50%, and then it was taxed, they would each receive a larger chunk after tax. If there was just $10K in the RRSP, it wouldn't make a difference, however, if there was $1million, it would make a significant difference.


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## rinoscar (Jan 26, 2010)

Thanks for all the replies, I have alot to think of)

Would it be possible to leak out on a monthly basis into a savings account or does it have to go into a riff?

AND,,if I can only place it in a riff, will the riff also be taxed, when the last parent passes away?


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## LBCfan (Jan 13, 2011)

Remembering , of course, that if the estate does not have enough money to pay the income taxes assessed because of the deemed income from the RRSP on death then that money has to come from somewhere. That somewhere is the RRSP if there is no spouse or dependent child who can roll it over tax-free.


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## Karen (Jul 24, 2010)

Rinoscar: Your mother can withdraw directly from the RSSP, but whether she does that or transfers it to a RRIF, the balance remaining on her death will be taxable on her final tax return. As I explained in my earlier post, there's no getting around that - no tax has been paid on that money and the government will, quite justifiably, demand the tax that's been deferred on it.

Steve: Thanks for the explanation - I see your point.


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## rinoscar (Jan 26, 2010)

Karen: I think I am missing something here. If the rrsp were to be withdrawn in increments of 500$ a month. Wouldn't the amount taken out be already taxed?


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## cardhu (May 26, 2009)

Rino … I may have misunderstood your earlier question, and I didn’t notice that you are in Quebec. That does make a difference.

In my previous post, I was referring to Karen’s example where one child is named as beneficiary of the RRSP, directly with the RRSP trustee, and the other child is simply left the residue of the estate … but I think that’s not what you meant, and I don’t think that kind of beneficiary designation is allowed in Quebec anyway … therefore, if what you meant was a case where the will makes no specific mention of the RRSP, but simply says “all assets to be split equally”, then it is as Karen stated, all of your mother’s outstanding taxes would be paid by the executor of the estate, out of the proceeds, and then whatever is left would be distributed to the heirs. The heirs aren’t personally responsible for those taxes, in that case, but of course each of their shares would be reduced by the amount of tax that their mother owed. 



> _Would it be possible to leak out on a monthly basis into a savings account or does it have to go into a riff?
> AND,,if I can only place it in a riff, will the riff also be taxed, when the last parent passes away? _


You can withdraw from either an RRSP or a RRIF … however, if she is age 65 or older, and she doesn’t have any other pension income other than QPP, then she should consider converting to a RRIF before withdrawing anyway, even if she’s not required to. There are two reasons for this … the first is to take advantage of the pension amount tax credit. If she’s in the lowest tax bracket, that would mean amounts up to $2000 per year can be withdrawn without any federal tax payable … I don’t know if there is an equivalent credit in Quebec tax law … and the second is that there are no withholding taxes on the required minimum RRIF withdrawal, but there is a withholding tax on RRSP withdrawals, and on any RRIF withdrawal in excess of the mandatory minimum. 

You probably could arrange to draw amounts monthly, but if this is extra income that isn’t immediately needed, then why bother? A single annual withdrawal would accomplish the same thing, taxwise, and would be simpler. 

The RRIFs would also be taxed upon death of the second spouse, exactly the same as an RRSP would.



> _I think I am missing something here. If the rrsp were to be withdrawn in increments of 500$ a month. Wouldn't the amount taken out be already taxed?_


Whatever balance is still remaining inside the RRIF would be taxed on her death. Earlier withdrawals would be reported as income in the years withdrawn and taxed accordingly. They wouldn’t be taxed again.


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## Karen (Jul 24, 2010)

rinoscar said:


> Karen: I think I am missing something here. If the rrsp were to be withdrawn in increments of 500$ a month. Wouldn't the amount taken out be already taxed?


I think Cardhu has answered your question very well - as he (she?) explained, only the amount remaining in the RRSP or RRIF at the time of your mother's death would be taxable at her death. That's why I said earlier that *the balance remaining on her death will be taxable.*


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## warp (Sep 4, 2010)

Just look at what the government puts people through, due to this INSANELY complictaed tax system we have!

It's a national disgrace, pure and simple.

And people still argue some sort of flat tax simplified system.

To RINOSCAR :

You say the money is still in an RSP, so I assume your mother is still relatively young....can you tell us her age?
The reason I ask, is that in the year she turns 65..she can put $14 K of her RSP into a RRIF, and withdraw $2 K per year till shes 71, ( thats 7 years inclusive from age 65 to age 71 at $2K per year = $14K)...you get the $2K per yaer pretty well tax free, by using the "pension income deduction" on her taxes forms of $2,000 per year.

This is something everyone should do at age 65.

good luck


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## warp (Sep 4, 2010)

Sorry , my last post should read:

"And people still argue AGAINST some sort of flat tax simplified system"


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## OhGreatGuru (May 24, 2009)

warp said:


> Just look at what the government puts people through, due to this INSANELY complictaed tax system we have!
> 
> It's a national disgrace, pure and simple.
> 
> ...


It's not insanely complicated. The RRSP is a tax deferral system. When the final spouse dies, the FMV of the RRSP or RRIF is treated as if it were withdrawn by the deceased on the date of death. And it is declared as income on the FInal Return of the deceased, where it will be taxed. The deceased person's Estate has to pay the deferred tax bill.

If there is no named beneficiary it is payed out to the Estate.

If a beneficiary is named, the bank will transfer the assets either in kind or in cash to the beneficiary, but it is still treated as a withdrawal by the deceased, and the T4RSP will still be made out in the name of the deceased. (naming a beneficiary has the benefit of keeping the funds out of probate, and the bank will pay the beneficiary without requiring a probated will.) The possible compliaction that arises is that if it is a large RRSP there may not be sufficient funds in the estate to pay the taxes. I believe I read in another thread some time ago that if that happens CRA can go after the beneficiary to cover the tax bill.


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## OhGreatGuru (May 24, 2009)

steve41 said:


> I guess what I am saying is that the RRSP is collapsed and taxed as one entity, and the resulting after tax proceeds are split between the 2 heirs. If the RRSP was split first and each heir received 50%, and then it was taxed, they would each receive a larger chunk after tax. ...


No, because the RRSP is taxed in the hands of the deceased, not the beneficiaries. You could split it into a dozen parts, but all the parts will be added to the income of the deceased on their Final Return.


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## steve41 (Apr 18, 2009)

OhGreatGuru said:


> No, because the RRSP is taxed in the hands of the deceased, not the beneficiaries. You could split it into a dozen parts, but all the parts will be added to the income of the deceased on their Final Return.


 That is exactly what I meant... it is taxed as one chunk, in the hands of the deceased and the after tax proceeds are then distributed to the heirs, rather than the RRSP itself being distributed untaxed to the heirs. Sorry if I didn't make that clear.


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## warp (Sep 4, 2010)

GURU:

Our tax system may not seem insanely complicated to YOU....
but don't confuse YOURSELF with all other taxpayers.....(I don't)

The simple fact is that I'd guess that 95% of regular taxpaying Canadians DO NOT understand it, especially over and above just filing a tax return, which most people still can't do.......and this makes it insane.

If filing and paying taxes is a legal requirement, then it stands to reason that regular taxpaying citizens should be able to understand and comprehend it.

Ask the poster who started this thread, if, even after all the replies to her question here, she still fully grasps the tax situation she is in.
So she has to pay a "professional" hundreds of dollars, or more, to explain it to her......and I have witnessed many a situation where these professionals were wrong too.

I , myself , have been given incorrect and misleading information from CRA reps themselves over the phone, who always seem upset, when you point out their errors instead of thanking you. The whole thing is a disaster for regular taxpayers, who routinely miss exemptions, deductions and credits they are entitled to, that the politicians have dreamed up ,( constantly making the tax forms more and more complicated) ,because of the complexities in the tax code. This makes the system insane.


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## OhGreatGuru (May 24, 2009)

I don't disagree that our tax system is unnecessarily complicated in many ways. I just don't think this particular issue is. There's lots of free literature out there, from government and financial instituions, on RRSPs and what happens to them when the annuitant dies.


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## Eclectic12 (Oct 20, 2010)

Karen said:


> [ ... ]
> 
> ... there is no way of avoiding being "hit by the taxes," as you put it. Only a surviving spouse or a disabled child are exempt from that requirement. Keep in mind that an RRSP is tax deferral plan, not a tax avoidance one, so the tax has to be paid on it at some point.


Interesting ... the "matured" RRSP link from CRA below sounds similar:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/dth/mtr-eng.html

But the "Unmatured" one indicates that amount reported on the 
"deceased annuitant's final return may be reduced" for a 
a financially dependent child or grandchild of the annuitant 
and an amount is paid from the unmatured RRSP to you or to 
the estate of which you are a beneficiary.

Tax free rollovers are mentioned for:
Effective July 1, 2011, if you were a financially dependant infirm child or grandchild you may also be allowed to rollover the proceeds of a deceased annuitant's RRSP to your registered disability savings plan (RDSP).

Unmatured RRSP CRA link:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/dth/mtr-eng.html


Cheers


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## rinoscar (Jan 26, 2010)

warp said:


> GURU:
> 
> Our tax system may not seem insanely complicated to YOU....
> but don't confuse YOURSELF with all other taxpayers.....(I don't)
> ...


If taxes were so easily understood by all, there would not be any HR blocks or any accounts charging a left arm to complete one


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## rinoscar (Jan 26, 2010)

I think my first question was not very clear, sorry about that, so I will try again:

My Mother who will be 68 in October, is now retired.
Last year she got: 
-4500 from her Surviving spouse's pension
-5000 from her Quebec pension plan benefits
-5800 from her private pension plan
-6200 from OAS(old age security)

She also made $$ on her rental income( I will ask another question on this, once my first question is cleared )

~45 000$ in Rsp's
~+100 000 in savings accounts + laddered Gic's(5 year)

She really doesn't need the RSP, but all my sister and I want is to have the FAT government hand to only take one cookie from the cookie jar. SO we were thinking of starting to liquidate her Rsp in very small amounts. Instead of losing almost 1/2 in one shot. Maybe my question should have been "Is there an effective way to withdraw the Rsp to pay as less tax as possible?" ;


Just so I get this right...RSP to a Riff, from the riff to another account( savings, tsfa...) is where we would get taxed?

Again thanks to everyone for the help and sorry for not being clear "er" on my first question


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## steve41 (Apr 18, 2009)

I am not sure whether it makes sense to convert it to a RRIF at all. She can still pull money straight out of her RRSP and she will be taxed at the same rate.


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## rinoscar (Jan 26, 2010)

steve41 said:


> I am not sure whether it makes sense to convert it to a RRIF at all. She can still pull money straight out of her RRSP and she will be taxed at the same rate.



Ok, so I CAN go from a Rsp (pay taxes) and deposit it into a tsfa.


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## humble_pie (Jun 7, 2009)

i beg your pardon ? you & your sibling are "thinking of starting to liquidate her Rsp in very small amounts" ?

it's possible that the real estate value & rental information will alter the picture substantially. But without the missing data, one can observe that your mother's income is not far above the poverty level.

why then would you be thinking to lower her income even further by prematurely depleting her rrsp.

in earlier posts you have referred to yourself as the sole decision maker with respect to your mother's rrsp.

i for one am uneasy with a situation like this. One has to wonder why your mother is not here asking these questions herself. Much better, why is she not discussing these issues with an excellent notary or lawyer.

rinoscar i would like to say to you, ever so gently, that you have demonstrated you are way in over your head. You have no more idea of how to manage & take proper care of your mother's affairs than you can operate the space shuttle guy laliberté flew in.

just as one tiny detail that contributes to the unease in this situation, in listing her income you omitted income from the GICs. Yet its absence screams out to be noticed. How could you possibly have missed it.

surely if your mother can manage a rental property, she can set up her own estate so as to benefit her children in the way that she, personally, intends.


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## rinoscar (Jan 26, 2010)

humble_pie said:


> i beg your pardon ? you & your sibling are "thinking of starting to liquidate her Rsp in very small amounts" ?
> 
> it's possible that the real estate value & rental information will alter the picture substantially. But without the missing data, one can observe that your mother's income is not far above the poverty level.
> 
> ...


WOW

didn't see that coming. The reason why my mother can't come here to do it herself is because she can't speak english. As for the rental property it was inherited and it is co-owned by her and her 2 other brothers!

Depleting her RSP???????? Moving it to a savings account or tsfa and will REMAIN there for my mother if she needs it!

Over my head...YES that is why I am here asking questions to get some views, answers and if I am still lost, then I will go see a financial adviser, lawyer, notary, or all at the same time. 

DAMM you make it sound like we're trying to fleece my mother!!! and don't appreciate that at all


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## humble_pie (Jun 7, 2009)

rino won't you please go back & reread your posts in this thread.

perhaps you did not intend this, but your messages speak nothing of an adult child who is concerned with his parent's future well-being or future medical needs or any other frequently-costly aspect of holistic ageing.

again, perhaps it was not your intent, but your messages speak only of an adult child who is surprisingly fixated on inheriting as much of his parent's meagre wealth as possible for himself & a sibling.

indeed i had wondered if your mother does not speak english or french, or whether she is handicapped in some way so that she cannot manage her own affairs. But you say that she inherited the real estate along with 2 brothers. This indicates a family that has been established here for at least a number of years. This does not suggest a helpless person with no resources to assist in planning her own old age. There should be some accountants, bank managers & possibly a lawyer who have already served this family.

focusing now solely upon this senior citizen and upon her needs - as opposed to your wants - i would be gravely concerned that her assets are modest. Government medical care is far too limited already & the situation in quebec is going to get worse. Shelter & nursing home housing for the elderly is becoming more restricted day by day.

so if it were my parent, i would worry about conserving her assets, because i would want for her to be kept as well and as happy as possible for the rest of her days. I would be mindful at all times that her income is low enough to keep taxation low & possibly non-existent, due to quebec low-income family and senior tax benefits.

as for a tfsa, imho this is a piffling detail in any broad properly-designed plan for your mother's old age. It might not even matter until the year she would pass away. But yes, in general everybody should have a tfsa. And no, persons in modest circumstances should not rob their rrsps in order to fund one.

why not divert 15k from the next-maturing GIC to open a tfsa. Once inside the plan, the funds can be utilized to purchase a GIC again.


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## OhGreatGuru (May 24, 2009)

rinoscar said:


> ...
> 
> My Mother who will be 68 in October, is now retired.
> Last year she got:
> ...


I'm hearing too many different goals here: maximizing current income; minimizing current tax burden; minimizing future tax burden; preserving capital for the benefit of beneficiaries.

If she has $100,000 in savings accounts + laddered GICs, she can put some of that into TFSA's to shelter earnings from current taxes - the earnings on thsoe are being taxed at the same rate as RRSP withdrawal would be. So she doesn't have to raid her RRSPs to utilize TFSA savings. At her current income level I don't see that the government is going to be taking more than about 20% at the most from RRSP withdrawals or RRIF payments while she is alive, unless she has a substantial income from that rental property that you are not telling us about. And if that's the case you would be better to to talk to an accountant for advice. 

When she dies, it really depends on what her income will be in the Final Return. But a 45K RRSP (or what's left of it) is not likely to push her into the top tax bracket.

If your mother is of average health, she has a life expectancy of another 15-20 years. Her costs may go up if she has to move into some kind of assisted living.


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## rinoscar (Jan 26, 2010)

ARE YOU KIDDING ME....

I wrote a long reply took me 30 minutes to write and then when I wanted to post, I was logged off....!!!


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## steve41 (Apr 18, 2009)

If you are trying to punch out a retirement income projection and an estate plan, then the presence of rental income indicates she has rental property and possibly her own principal residence. If you included those items in the data, then the presence of that modest RRSP and whether or not she chooses to melt it down early, makes little if any difference to her or the estate.


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## OhGreatGuru (May 24, 2009)

rinoscar said:


> ARE YOU KIDDING ME....
> 
> I wrote a long reply took me 30 minutes to write and then when I wanted to post, I was logged off....!!!


I know the feeling. When I have something long and/or complicated to write I find it better to draft in my word processor first.


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## rinoscar (Jan 26, 2010)

steve41 said:


> If you are trying to punch out a retirement income projection and an estate plan, then the presence of rental income indicates she has rental property and possibly her own principal residence. If you included those items in the data, then the presence of that modest RRSP and whether or not she chooses to melt it down early, makes little if any difference to her or the estate.


yes, and that was included in my post that never made it.


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## rinoscar (Jan 26, 2010)

humble_pie said:


> rino won't you please go back & reread your posts in this thread.
> 
> perhaps you did not intend this, but your messages speak nothing of an adult child who is concerned with his parent's future well-being or future medical needs or any other frequently-costly aspect of holistic ageing.Your right because my mother is in good shape and that never crossed my mind at the present moment. We are aware that at anytime situations do change. AND YES THAT WAS NOT MY INTENTION.
> 
> ...


Thanks


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## rinoscar (Jan 26, 2010)

steve41 said:


> If you are trying to punch out a retirement income projection and an estate plan, then the presence of rental income indicates she has rental property and possibly her own principal residence. If you included those items in the data, then the presence of that modest RRSP and whether or not she chooses to melt it down early, makes little if any difference to her or the estate.


Rental income ~6000 and she has a home with no mortgage.


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## humble_pie (Jun 7, 2009)

dear rinoscar,

thank you for writing back. I was delighted to learn that your family is part of the large & important italian heritage that helps make montreal the sparkling multi-cultural city that she is. Your grandparents sound like wonderful people. I had great-grandparents like that. Sometimes i wish they were alive today so they could see all the good things that their hard work has provided, still going strong for so many generations & descendents today.

and i'm certainly pleased to know that your mom is in good health. This gives you a long time to plan & manage her affairs properly. This is much easier to do when there's no emergency.

re the tfsa. Everything inside such a tax-free account, including any interest or dividends or capital gains it may earn, is tax-free to the holder. Even upon death, all of such an account, including all its accrued interests etc, will be made over to the heirs without tax (although any income earned within such a plan after the death of the plan owner would be subject to taxation.) Here is a link from the cra:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/dth/menu-eng.html

i'm a big believer in tax free savings accounts myself, so i hope that every spare penny can be contributed to one that you would set up for your mother. The next-maturing GIC might be some time off, but you or your sibling could do research in the meantime as to which institution could offer your mother the best plan that would be suitable for her.

there would be a way to melt funds out of her rrsp and into a tfsa but it absolutely depends on how her income is currently taxable, and whether such income is below taxable levels. This, in turn, presumes close & detailed familiarity with her income tax returns both federal and quebec (please keep in mind that the quebec bite will be far larger.)

i don't mean to pry, and i think it would be better for you not to address this issue here in this public forum. All i wish to say is that if your mother pays no income tax in quebec, then there could be room for a certain relatively modest withdrawal from rrsp that, although technically taxable, would not drive her income to the taxable level in her case. This is just something for you to think about, or to ask her accountant or whoever prepares her tax returns.

turning now to her interest in the rental property, all of the expenses in handling this property should be deductible from its rental income. There are active and very capable landlords here in this forum (i'm not one myself) so i'm hoping that one will come forward with information on this topic for you.

if your mother is not personally living in the fourplex - and it appears that she is not - then i believe that the capital gain arising from her interest in this property will become taxable in her estate upon her death. To my way of thinking, this is a larger potential tax liabililty than the relatively small rrsp, because i would assume that there has been a substantial gain in this property's value during the years your mother has owned her portion. However, mercifully enough, only half the gain may be taxable.

the foregoing doesn't have to be solved or addressed at present imho. It's just one more issue to add to the inventory of matters to be considered in your mother's estate plan - the plan you are starting to build.

finally, i would like to say that i volunteer in a community centre, and sometimes clients arrive saying they represent a wife, or a parent, or a girlfriend, or a handicapped relative ... so i've grown used to looking past the immediate client & focusing on the rights & the well-being of the hidden person. So i was concerned by your early messages because they didn't give a true picture. The situation is not really just about your mother's rrsp, is it. It's more about looking after a gallant lady as she ages, and about her caring offspring.

ciao
hum
.


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## steve41 (Apr 18, 2009)

Irrespective of melting her RRSP, I expect that, with all her various pension incomes and the rental income, I don't see how she can avoid paying tax.

I will fire up a 'die-broke at 100' projection this AM. I will assume a house value of $300K unless I hear otherwise.


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## steve41 (Apr 18, 2009)

OK. Here is a 'leave the RRSP alone', die-broke-at-110 projection. I assumed the house was worth $300K. 4% rate, 2% inflation.

Good old Mom


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## rinoscar (Jan 26, 2010)

humble_pie said:


> dear rinoscar,
> 
> thank you for writing back. I was delighted to learn that your family is part of the large & important italian heritage that helps make montreal the sparkling multi-cultural city that she is. Your grandparents sound like wonderful people. I had great-grandparents like that. Sometimes i wish they were alive today so they could see all the good things that their hard work has provided, still going strong for so many generations & descendents today.
> 
> ...


Ciao


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## rinoscar (Jan 26, 2010)

steve41 said:


> OK. Here is a 'leave the RRSP alone', die-broke-at-110 projection. I assumed the house was worth $300K. 4% rate, 2% inflation.
> 
> Good old Mom


Did not expect this, huge big thanks.


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## OhGreatGuru (May 24, 2009)

I may get dumped on for suggesting she liquidate real estate, but my advice would be for her to sell her share in the rental property while she has her health & marbles. At her age she should not have to worry about managing a building; it is already complicating her taxes, and may be a nightmare in settling the estate. OTOH it would not be unusual for someone with her background to resist the idea of disposing of family assets. (Maybe her brothers will surprise her and think it is time too.


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## OhGreatGuru (May 24, 2009)

_... the fourplex - ... then i believe that the capital gain arising from her interest in this property will become taxable in her estate upon her death. .....
This is one of my bigger fish to fry. This was mentioned to me about 4 years ago from my life insurance broker._

Insurance to cover the tax bill on the rental property would be to the benefit of the beneficiaries, not to her. So unless your mother feels strongly that she wants to leave a substantial bequest to beneficiaries, or keep ownership in the family unencumbered by taxes, I wouldn't recommend life insurance.


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## rinoscar (Jan 26, 2010)

OhGreatGuru said:


> I may get dumped on for suggesting she liquidate real estate, but my advice would be for her to sell her share in the rental property while she has her health & marbles. At her age she should not have to worry about managing a building; it is already complicating her taxes, and may be a nightmare in settling the estate. OTOH it would not be unusual for someone with her background to resist the idea of disposing of family assets. (Maybe her brothers will surprise her and think it is time too.


Trust me my sister and I have talked about this and how to approach my mom to maybe think of selling, because of the mess this creates. I will try to explain this situation, but I tried once and that is when I got logged off 

My mom will never sell as you said, her background, bought by her parents..! Yeah that ain't gonna happen. 

On this point I think my sister and I need to get well informed and start preparing for it now.

Oh also, my mom doesn't really take care of the building, if there is any work to be done, he takes care of it, or calls someone.


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## rinoscar (Jan 26, 2010)

OhGreatGuru said:


> _... the fourplex - ... then i believe that the capital gain arising from her interest in this property will become taxable in her estate upon her death. .....
> This is one of my bigger fish to fry. This was mentioned to me about 4 years ago from my life insurance broker._
> 
> Insurance to cover the tax bill on the rental property would be to the benefit of the beneficiaries, not to her. So unless your mother feels strongly that she wants to leave a substantial bequest to beneficiaries, or keep ownership in the family unencumbered by taxes, I wouldn't recommend life insurance.


I wanted to purchase life insurance, I was married and wanted to protect my wife if anything happened to me. There was this insurance broker that use to shop where I work. He came over to the apartment, to give me options...anyhow when he was leaving he asked me out of curiosity i guess, to whom the building belonged to, and told him that is was 3 owners...ect
He then told me that is my mother would to pass away, there would be capital gains tax to pay...but he wasn't trying to sell insurance for that, well at least I don't think he was


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## humble_pie (Jun 7, 2009)

in no particular order, a few random thoughts re the real estate:

1) capital gains upon sale or disposition will always have to be dealt with. It is not as if, by selling property now, the gains can be avoided. They will simply be dealt with by your mother on her tax return for the year of the sale. Alternately, gains can be postponed as late as a "deemed disposition" upon death, when such gains will still have to be dealt with in your mother's final tax return, the one that will be prepared by her executor.

there is a school of thought that says Always Defer Taxes. It's a school, not a rule.

2) it would probably be useful if you should know how to calculate the cost base of this real estate asset. Your mother had 2 acquisition events, one being the value of her portion when she inherited her share (hopefully your mother has a document, possibly from a notary, showing market value of the property at the time of inheritance, or - even better - market value of her share), and the other acquisition event being her purchase of part of the share of the brother who wished to sell.

3) i agree with guru that insurance to pay the gains is not necessary; the premiums payable would be an extra burden upon whoever pays those premiums. It appears that there is ample cash to pay any tax owing from the GICs.

4) the 2 brothers - your uncles - and your mother must be all more or less in the same age group. So all 3 owners of the property are facing the same future & the same choices, more or less. Do you have cousins (ie heirs to your uncles' portions of the property). If so, have they thought about what the property might come to mean in the future, as the present owners grow older & less able to manage it. What i am getting at is that a united effort from all the cousins might convince all the parents, including your mother, to sell.

5) rather wild idea: an interesting new factoid is that you yourself live, or did previously live, in the fourplex. What would happen if your mother were to bequeath her share to you in her will, or alternately, to both you & your sister and you could buy out your sister's interest. Could you see yourself, in time, also buying your 2 uncles' portions.

in other words, if you still live in the building, might you be interested in becoming its sole owner in time. And if the answer would be yes, might you look into the possibility of buying your mother's portion in staggered payments over a number of years during her lifetime. Depending on how a notary could structure the sale, this might possibly provide some easement against a one-time disposition with concomitant high capital gains.


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## rinoscar (Jan 26, 2010)

Hello,



humble_pie said:


> in no particular order, a few random thoughts re the real estate:
> 
> 1) capital gains upon sale or disposition will always have to be dealt with. It is not as if, by selling property now, the gains can be avoided. They will simply be dealt with by your mother on her tax return for the year of the sale. Alternately, gains can be postponed as late as a "deemed disposition" upon death, when such gains will still have to be dealt with in your mother's final tax return, the one that will be prepared by her executor.I need clarification; If mother passes away and still holds the property, and in her will it states that it will go to my children. Then why would there be any taxes to pay? She did not sell it? sorry for the dumb question
> 
> ...


Thank you.


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## humble_pie (Jun 7, 2009)

your grandparents would be so happy if they could see yourself & your sister becoming the owners eventually & carrying on for the 3rd & possibly the 4th generation.

it's a lot of work. But heritage properties are always a lot of work. Worth it in the end, though. Courage.

to reply:

1) in the eyes of the tax authorities, there is a "deemed disposition" of assets when a person passes away. The deceased is deemed to have sold his assets at fair market value upon the day of his death. This is true for both the federal CRA & for revenu quebc. Final tax returns must be filed reporting all these dispositions plus appropriate gains or losses. The executor of the will is charged with the duty to get these tax returns prepared & filed.

so that's why it's always useful to know the cost base, or cost of acquisition, of all the various assets in an estate.

with respect to commercial real estate, there would be depreciation of the building as well as its appreciation from rising real estate prices over the years. I have no experience or knowledge in this area. However, whoever is doing the accounting for this property would be knowledgeable, i would imagine.

it occurs to me that if your mother herself was living in the property at any time after she inherited a portion, then she would have a principal residence exemption pro-rata for any gains during the period of time she resided therein ... these are paper gains only, based on fmv of property on applicable dates not on whether property was ever sold ... ouf ... 

2) don't worry if such a document can't be found at present. It will probably turn up. You could inquire of your uncles because they would have received similar documents from the notary when your grandparents' estate was wound up. Surely one of the 3 siblings managed to keep their documents, lol.

one of the 3 - mother, uncles, etc - will no doubt have the name of the notary, at least. If necessary, it would probably be possible to obtain these records from the archives of the chambre des notaires.


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