RRSP - estate/inheritance question

[TESLAMotors]

I just got a call from a friend last night and she found out her mother had left her RRSPs to her. She's in a little bit of a panic/anxiety mode as she's on vacation and swore off no internet for the week she's gone.
This apparently was quite a bit of a surprise.

I certainly don't know and I'm looking the stuff up now, but what is the tax rate for someone who inherits a family members RRSPs?
Can/does she cash them and liquify them into her account?

 

[stanleyross]

I just got a call from a friend last night and she found out her mother had left her RRSPs to her. She's in a little bit of a panic/anxiety mode as she's on vacation and swore off no internet for the week she's gone.
This apparently was quite a bit of a surprise.

I certainly don't know and I'm looking the stuff up now, but what is the tax rate for someone who inherits a family members RRSPs?
Can/does she cash them and liquify them into her account?[/QUOTE

I would suggest going to the website www.cra.gc.ga and search "death of rrsp holder".

Is your friend listed as the beneficiary of the rrsp?



http://www.cra-arc.gc.ca/E/pub/tg/rc4177/rc4177-e.html

The lawyer for the estate and her financial advisor should be contacted to get the appropriate advise.

 

[iamasian]

I just got a call from a friend last night and she found out her mother had left her RRSPs to her. She's in a little bit of a panic/anxiety mode as she's on vacation and swore off no internet for the week she's gone.
This apparently was quite a bit of a surprise.

I certainly don't know and I'm looking the stuff up now, but what is the tax rate for someone who inherits a family members RRSPs?
Can/does she cash them and liquify them into her account?

Unless it is a spouse, the RRSPs will be liquidated and the cash will be transferred to your friend.
Side note: spouses qualify for a tax-free rollover into their own respective RRSP with no effect on their contribution room.

In the case of your friend OP, the RRSPs will be taxed on the hands of her mother. A T4RSP will be issued the year of, or the year following, the liquidation in her mother's name or to "The Estate of...." and a tax return will need to be filed next year.

This could be different if the mother has received a clearance certificate from CRA. Your friend should seek out an accountant.

 

[newtohobby]

If she is the benificiary of the RRSPs then she will be transferred the amount into her account. The full amount no withholding taxes. As for her mother, she will recieve a T4RSP slip and be charger whatever withholding taxes apply. Then with its time to do her final income tax return, the estate is responsible for paying her final bills or who ever that was appointed to handle her financial affairs in her will.

 

[TESLAMotors]

They get you even when you die, damn.

 

[Worf]

If she is the benificiary of the RRSPs then she will be transferred the amount into her account. The full amount no withholding taxes. As for her mother, she will recieve a T4RSP slip and be charger whatever withholding taxes apply. Then with its time to do her final income tax return, the estate is responsible for paying her final bills or who ever that was appointed to handle her financial affairs in her will.

RRSP's are fully taxable on death to the final return of the person who died. The funds will get paid to the daughter, if she was the beneficiary of the RRSP. The daughter has no responsibility to pay the taxes for her mother, unless she is the executor of the will. If these are different people, then the daughter can run away with the money if she wishes.

Depending on the amount of the RRSP, the tax rate could be the highest marginal tax rate (about 50% in Ontario).

 

[Worf]

The lawyer for the estate and her financial advisor should be contacted to get the appropriate advise.

Good advice....

 

[lomotil]

The trick is to defer defer defer paying tax, but not up to the point when you are old and senile, cannot enjoy the money and it all becomes a blur. It is hard, if not impossible to beat the tax man ....legally.

 

[GPIDEAL]

I'm not sure if a bank won't withhold taxes on a transfer to a direct beneficiary.

Certainly, a beneficiary named in a will would have to show a probated will to the bank before they can receive any funds, but an executor or trustee should or will intervene to ensure that the taxes on such RRSP proceeds are paid in the deceased's final return or that of the Estate.

I can ask someone tomorrow who should know.

 

[GPIDEAL]

No requirement to withhold tax on RRSP by plan administrator

I found an article that confirms no requirement to withhold tax on RRSP by plan adminstrator to either a beneficiary or the estate. (Wow!) http://devrieslitigation.com/wp-con...STATE-by-Justin-de-Vries-and-Diane-Vieira.pdf

Excerpt here:

Withholding Tax (s. 153(1) (1) of the Act; Regulations 100(1) (j); (103(6) (d.1))

There is no requirement to withhold the remittance of tax when a taxpayer's RRSP or
RRIF is paid out after death to a named beneficiary or to his or her estate. The Act only
requires that tax be withheld during the lifetime of the annuitant. Plan administrators
may not be aware of this distinction.

 

[GPIDEAL]

Legal rep still has to ensure that taxes are paid, even to direct beneficiaries of an RRSP.

Duties of the Legal Representative

Under the Act, it is the responsibility of the legal representative (legal representative
refers to an estate trustee or the administrator of the estate if probate is not required) to
file all required returns for the deceased on a timely basis, pay all tax owing, and advise
the beneficiaries whether the amount they receive from the estate is taxable. The legal
representative may be responsible for filing up to four returns in the year of death, in
addition to any returns not filed for previous years.

The liability of the legal representative requires that this duty is completed in a prudent
manner. To the extent that assets have been distributed and taxes owed and there is an
insufficient assets left in the estate, the legal representative is personally liable for any
shortfall and for any interest and penalties incurred. Because of this, it is prudent for the
legal representative to hold back a sufficient portion of the estate funds until a final
clearance certificate has been received from Canada Revenue Agency4
(“CRA”).

The beneficiaries of an estate may also be liable for taxes even after the assets have been
distributed to them, as creditor’s claims including outstanding tax liabilities have
precedent over the rights of a beneficiary to his or her bequest. Additionally, the Act has
several rules that specifically provide for the joint and several liability for income tax
owing with respect to Registered Retirement Income Funds (“RRIF”) and Registered
Retirement Savings Plans (“RRSP”).5

If the CRA cannot collect from the estate or the legal representative, they will try to collect from the beneficiaries. They beneficiaries
may be liable to the extent of the value of the assets from the estate they received and
possibly the gains or income from those assets. The liability includes liability for the
year of death and all prior years.

A legal representative should seek proper tax advice when completing the deceased’s tax
returns or the tax returns for the estate. Aside from their own liability, failure to take
measures to reduce or defer taxes could make the legal representative vulnerable to
criticism by the beneficiaries of the estate.

1 Justin and Diane can be reached at www.devrieslitigation.com or by calling 416-640-2754

2 See Anne E.P. Armstrong, ed. “Estate Administration: A Solicitor’s Reference” looseleaf (Scarborough,
Ont.: Carswell, 2007), “Tax Returns”, 5-1 for more detail.

3 R.S.C 1985, c. 1 (5th Supp). Version in force in December 15, 2009 is referred to.

4 Act, s. 159(3), C.R.A. Income Tax Information Circular 82-R67, “Clearance Certificate” (November 23,
2009).

5 See Belanger v. The Queen, 2007 TCC 502(CanLII), ss. 160.1, 160.2, 160.21of the Act.