If a truck were to hit you tomorrow as you crossed the street, what would happen to your money? Does your wife or ex-wife get the RRSP? Do your children receive your estate tax free? Can your family access the cash in your savings account?
Here are a couple of tips to help you avoid common estate planning mistakes. They will not cover all of your issues; for that you must have a full estate review. However, if you remember these rules you will be further ahead than most.
RRSP, RRIF, TFSA, LIRA, LIF and Other Registered Accounts
Little Story… I had a client who was divorced for many years. He remarried later in life, but decided to leave his ex-wife as beneficiary to his RRSP/RRIF and give his house to the new wife. Bad idea. The ex got the whole value of the RRIF paid out without any tax. The new wife got the house tax-free but, as executor of the late husband’s estate, she had to pay the taxes due on the full amount that the ex-wife received from the RRIF.
Take Note… Registered accounts offer the ability for a beneficiary to be selected to facilitate the transfer of assets upon death. The person or persons you select will determine whether or not there is a taxable consequence. Your legal spouse and mentally or financially dependent children get a tax free rollover, while everyone else is a taxable transfer.
Beneficiary designations supersede the will and probate. This means that the beneficiary gets paid, in full, while the taxes payable become the responsibility of the estate and executor.
But Beware… Even if you change your will it will not automatically change all of your beneficiary designations. For that you must contact each institution in writing.
Little Story… An elderly widow had money in her bank account to cover expenses and the like. When she fell ill, her daughter went to the bank to make a withdrawal on her behalf; however, the bank said that they could not do so without the mother being present. Although the daughter had a POA, she did not have a letter of incapacitation from a doctor. She eventually got the letter and straightened it out but not before covering the mom’s expenses for three months on her own dollar.
Take Note… You cannot select a beneficiary on a bank account. Therefore, when you fall ill or pass away, no one can access your bank accounts if they are not named on the account. It may be advisable to add a VERY trustworthy family member to your account. As joint holder they can access cash and make bill payments on your behalf. If you find yourself in this type of situation, you should definitely have a POA and most likely add that person to your account.
But Beware… If you put another person in joint/and/or on your accounts they can take your money. Even worse…if they get divorced their spouse has claim on the money. Also, bank accounts must be probated in the deceased’s name and are frozen until the will is probated.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinion and estimates constitute the author’s judgement as of the date of this material and are subject to change without notice. We do no warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstance and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard for their own particular circumstances. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trademark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. both used under license by Richardson GMP Limited.