# Beneficiary to RRSP - no other estate



## engen (Mar 5, 2011)

My uncle passed away recently and listed me as the sole beneficiary to an RRSP worth six figures. He was in a unique situation where his RRSP was his only asset - no car, house, cash etc. and he did not have a will or name an executor. My uncle was never married and had no children. The bank has notified me that they will be providing me with the full value of the RRSP and I am not obligated to pay any taxes; however the value of the RRSP will be considered part of his income for the year and his estate will be taxed accordingly. This means that his estate will be taxed in the highest tax bracket and will owe approximately $40 000 in taxes. My question is: if I receive the money from this RRSP and there is no other estate and no spouse to be held responsible for the estate, what happens? Will the government expect me to pay the taxes?


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## cannon_fodder (Apr 3, 2009)

Check these sites out which, IMO, answer your question.

http://wheredoesallmymoneygo.com/naming-a-beneficiary-for-your-rrsp-avoid-unnecessary-tax/

http://www.theglobeandmail.com/glob...an-rrsp-beneficiary-in-your-will/article8331/


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## Karen (Jul 24, 2010)

Actually I don't think that either of these two articles answer the OP's question at all. The first one applies to "qualified" beneficiaries" which the OP, I assume, is not - he is neither a spouse nor a disabled or underage child of the deceased owner of the RRSP.

The second article explains that it is the estate, not the beneficiary of the RRSP, which is responsible for the taxes on the registered funds, but it doesn't address the question the OP is asking, i.e. what happens when the RRSP is the only asset the deceased owned so there is nothing in the estate with which to pay the taxes. Does the beneficiary of the RRSP have any responsibility to pay? It seems, on the surface, that he wouldn't, but I can't believe CRA would let that happen.

I think it's a very interesting question, and I'm hoping someone has the answer.


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## the-royal-mail (Dec 11, 2009)

Yeah I read the articles as well and the qualified beneficiary scenario is not relevant here. 

Additionally, it sounds like the OP is both beneficiary and executor. Since he gets the entire estate, my understanding is that he will also be responsible for the taxes.

If the executor and beneficiary in this case were different, then the executor would apparently be calling the beneficiary when they got the massive tax bill, owing to the gov't based on the RRSP.

Other than qualified beneficiaries, is there any other situation where this type of estate wouldn't owe taxes on the RRSP upon transfer to the beneficiary?


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## MikeT (Feb 16, 2010)

http://blog.mti-cga.com/wp/?p=183


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## the-royal-mail (Dec 11, 2009)

Thanks MikeT - that about sums it up.


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## OhGreatGuru (May 24, 2009)

Yes, thanks. That article clears up a grey area that has been a question before.


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## Karen (Jul 24, 2010)

Good find, Mike! Thank you.


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## sprocket1200 (Aug 21, 2009)

estate pays for sure. just another example of the potential windfall for the feds and rrsp's. the other one is gov't pensions. they will get fortunes in taxes from these two sources alone!!


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## cannon_fodder (Apr 3, 2009)

Wow, I thought the articles DID answer the question. The OP is NOT a qualified beneficiary thus there will be tax to be paid. Secondly, he was named as beneficiary, not the estate.

It was 4am my time when I posted so I guess I misread the OP's post and the articles.


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## OhGreatGuru (May 24, 2009)

sprocket1200 said:


> estate pays for sure. just another example of the potential windfall for the feds and rrsp's. the other one is gov't pensions. they will get fortunes in taxes from these two sources alone!!


1._windfall for the feds and rrsp's_ RRSP is a tax-deferral plan, not a tax avoidance plan. The government (aka the taxpayer) are getting what they are owed in deferred taxes.

2. _the other one is gov't pensions_ I don't follow your logic here. There is no pile of money in a government DB pension plan that the governmnt skims off in taxes every time a pensioner dies. And almost everyone else says employees aren't paying their fair share; government (ie taxpayer) has to pick up tab for too-generous benefits; blah blah blah. I thought you would be happy if a pensioner dies, thus saving the government (and taxpayer) the cost of their pension. Unless what you are complaining about is that if you die early, neither you nor your estate gets any value out of your contributions. But that's true of most pension plans. The ones who die young subsidize the ones who live long.


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## the-royal-mail (Dec 11, 2009)

I'll have to check the rules but I thought that gov't pension contributions would go into an estate or to spouse or beneficiary upon death? Sorry if that's a dumb question, I just can't remember at the moment.


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## stardancer (Apr 26, 2009)

the-royal-mail said:


> I'll have to check the rules but I thought that gov't pension contributions would go into an estate or to spouse or beneficiary upon death? Sorry if that's a dumb question, I just can't remember at the moment.


I have a public service pension; on my death, my husband (if he is still alive) gets 66% of the pension monthly. Once he goes, or if we both go, no one gets anything, as we have no dependent or disabled children.


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## sprocket1200 (Aug 21, 2009)

OhGreatGuru said:


> 1._windfall for the feds and rrsp's_ RRSP is a tax-deferral plan, not a tax avoidance plan. The government (aka the taxpayer) are getting what they are owed in deferred taxes.
> 
> 2. _the other one is gov't pensions_ I don't follow your logic here. There is no pile of money in a government DB pension plan that the governmnt skims off in taxes every time a pensioner dies. And almost everyone else says employees aren't paying their fair share; government (ie taxpayer) has to pick up tab for too-generous benefits; blah blah blah. I thought you would be happy if a pensioner dies, thus saving the government (and taxpayer) the cost of their pension. Unless what you are complaining about is that if you die early, neither you nor your estate gets any value out of your contributions. But that's true of most pension plans. The ones who die young subsidize the ones who live long.


for 2, the windfall I am talking about is the annual tax revenues on gov't pensions. they will collect a mint! and yes, once pensioner and spouse dies, the estate gets jack, no nest egg here, move along, nothing to see...


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## the-royal-mail (Dec 11, 2009)

sprocket1200 said:


> for 2, the windfall I am talking about is the annual tax revenues on gov't pensions. they will collect a mint! and yes, once pensioner and spouse dies, the estate gets jack, no nest egg here, move along, nothing to see...


Wow. That's interesting and a bit scary. So what about if someone who is contributing to a pension plan dies before they start collecting? Then there's a pool of money they've collected. If they leave their job they have the option of moving that money into their RRSP or taking the cash and paying tax. Does their estate also get this money if they die in their working years?


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## MikeT (Feb 16, 2010)

There's a supplementary death benefit in most public service pension plans normally equal to twice your annual salary. Payable to your survivors or estate. The benefit starts to be reduced as you enter retirement and disappears in your 70's.


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## Leading Edge Boomer (Apr 5, 2009)

If you wish to leave any money to a charity when you die--anyone that has CRA registration number--then making said charity the beneficiary of your RRSP/RRIF is a good way to do it. Then the charity can issue a tax receipt that can be filed with the deceased last tax return and reduce the tax owing from sale of the RRSP/RRIF assets.


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## Maltese (Apr 22, 2009)

the-royal-mail said:


> Wow. That's interesting and a bit scary. So what about if someone who is contributing to a pension plan dies before they start collecting? Then there's a pool of money they've collected. If they leave their job they have the option of moving that money into their RRSP or taking the cash and paying tax. Does their estate also get this money if they die in their working years?



I've been told by my pension administrator, that if I should pass away prior to receiving my pension, my contribution amount will be provided to my estate. If I pass away after I have retired but before all of my contributions have been used, the balance will go to my estate. I hope this answers your question.


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## the-royal-mail (Dec 11, 2009)

Yes, thank you. How about the employer contributions? Does my estate get those too?


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## Eclectic12 (Oct 20, 2010)

sprocket1200 said:


> for 2, the windfall I am talking about is the annual tax revenues on gov't pensions. they will collect a mint! and yes, once pensioner and spouse dies, the estate gets jack, no nest egg here, move along, nothing to see...


What windfall?

Like the RRSP, the employer and employee pension contributions are _*tax free*_!

Line 207 on your tax form reports the pension contributions, which is then summed up with other similar deductions on line 223 and then the total is subtracted your income (line 150) to end up with line 234 - Net Income before Adjustments. 

This is why there is also line 206, the pension adjustment (PA) which reduces the earned RRSP contribution room to reflect that the pension money that is tax deferred.


The taxes are on pension income are no different than when the pensioner was working for a company earning a salary which was also taxed.

In fact - if the pensioner's retirement income is substantially less than when an employer, the *tax collected could be less than when working.*


Cheers


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> Wow. That's interesting and a bit scary.
> 
> [ ... ]
> 
> ...


Check out my post - the pension contributions are no different than an RRSP contribution except there is no refund as no tax was taken in the first place!

The part about dying before retiring has been answered so I'll skip it.


As for leaving a job, with I've done twice - the options for the defined benefit plan were the same.

Assuming one asks to transfer instead of collecting the capped benefit at retirement, the actuaries calculate a couple of things. They were:
A) how much was my share of the combined contributions and growth
A) of the total of A, how much is "needed" to fund the earned benefit.

The total was transferred to me. Amount B has to be transferred to a locked-in RSP so that withdrawals are not allowed until retirement. Anything above amount B can be transferred straight to an RRSP (where withdrawal can happen when I choose) or taken as cash with income tax deducted.

So, if amount A is $10K and B is $10K, nothing can be taken as cash. In my case, amount A was something like $22K, amount B was $16K so I could have taken $6K or less as cash.


Note that a defined contribution (DC) plan might be eligible to be taken as 100% cash. I'd expect the withholding tax to apply as at the end of the day, a DC plan is really an RRSP which may have some additional money contributed by the employer.


Cheers


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