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Death of a Loved one

Transfer of Assets

 

Registered Retirement Savings Plans (RRSPs)

If your spouse held RRSPs, a Refund of Premiums representing the value of the investments in the RRSP can be transferred to you on a tax-sheltered basis. You can choose to:

  • transfer the funds to an RRSP
  • transfer the funds to a RRIF
  • transfer the funds to a registered annuity with an insurance company

Annuities

If your spouse had an annuity when he/she died that was a term annuity and you were named as the successor annuitant, you will begin to receive the remaining payments.

Annuities

If your spouse had an annuity when he/she died that was a term annuity and you were named as the successor annuitant, you will begin to receive the remaining payments.

Registered Retirement Income Funds (RRIFs)

If your spouse had money in a RRIF, the value of the remaining amount in the RRIF can be paid to you as a Designated Benefit. The funds can be received tax-sheltered by either:

  • transferring the funds to another tax-sheltered plan such as an RRIF or an RRSP (if you are 71 or younger)
  • taking over the RRIF assets – you will then start receiving the payments and be responsible for paying tax on the yearly withdrawals, or
  • using the funds to purchase an annuity

Deferred Profit Sharing Plan (DPSP)

As with other registered plans, if your spouse had a DPSP when he/she died, the proceeds of the plan can be transferred on a tax-free basis into one of the following in your name:

  • RRSP
  • RRIF
  • Registered Pension Plan (if the plan permits)

Non-Registered Assets

If your spouse held non-registered assets at death, there will probably be opportunities to transfer or ‘rollover’ those assets to you without immediate tax implications.

Under the spousal rollover rules all assets can be transferred to you without immediate tax consequences.

Real Estate

If your property is registered in joint tenancy with right of survivorship (meaning both spouses are equal owners) on the death of your spouse, you automatically assume full ownership of the property. This will reduce probate fees.

I can provide you with more information about the implications of transferring your spouse’s assets.

If the person who passes away isn’t a spouse, taxation rules are handled differently.

As described above, there are special tax rules that allow for the tax-free transfer of assets to a surviving spouse. Different rules apply where the deceased does not have a surviving spouse. Under tax law, death will result in a deemed disposition of all assets at Fair Market Value and they will be tax payable unless there is a surviving spouse and, in a more limited sense, where there are surviving minor children or adult children with a disability.

Taxes on death

The proceeds of a person’s estate cannot be distributed to beneficiaries until all estate debts have been paid and tax is usually the largest debt. This can present difficulties if there is not enough cash in the estate to satisfy the tax bill which may mean selling estate assets. Where there are non-registered assets such as real estate, there may be capital gains that arise and where there are registered assets such as RRSPs or RRIFs, the full market values will be taxed. Consequently, the beneficiaries may not receive what the deceased intended. In the case of a family home, the Principal Residence Exemption will often serve to protect any of the gains from tax.

Probate

Probate fees are the provincial/territorial death taxes levied on the value of a deceased’s estate. Although taxes cannot be avoided, there are ways to avoid or reduce probate fees by having assets pass outside the estate, such as having a named beneficiary on registered funds such as RRSPs and life insurance. Having assets registered in Joint Tenancy will also result in assets passing outside the estate.

Transfer of Pension Assets

If your spouse passes away and was a member of a pension plan, you will be entitled to benefits. What you can receive depends on the type and terms of the pension.

Defined Contribution Pension Plan

This is the type of pension plan where the amounts being contributed each year are known, but the amount being paid out on retirement depends on the growth of the money contributed over time. At retirement the member’s portion of the pension will usually be paid out through a life annuity provided by an insurance company that guarantees set payments for the beneficiary’s life.

The amount of pension you will receive depends on whether your spouse died before or after they started receiving their pension:

Death before pension payments began
If your spouse died before he/she started receiving his or her pension, then you can choose to receive    the pension in any form that he or she would have been entitled to, for example, a monthly pension guaranteed for 15 years. Alternatively, if you are less than 71 years of age, you may be allowed to receive the pension benefits as a lump sum. You could choose to transfer the lump sum to an RRSP on a tax-free basis. The lump sum value received today instead of an ongoing regular payment is called the ‘commuted value’.

Death after the start of the pension
Some jurisdictions require a pension to be joint and last survivor with the widow/widower being the remaining beneficiary. In this case, the pension will continue to be paid to the surviving spouse for his or her lifetime, but at a reduced amount, perhaps 60%.

Some plans will permit a lump sum amount to be paid to the widow/widower. If he or she is less than 71, the lump sum can be transferred to an RRSP on a tax-sheltered basis.

Defined Benefit Pension Plan

This is the type of plan where a formula outlines how much you will be paid at retirement.

As with Defined Contribution plans, the benefit received by the widow/widower depends on if the death occurred before or after the pension payments begin.

Death before pension payments begin
The commuted value (value of the benefits accrued to that point in time) of your spouse’s pension at the time of death can be paid to you. You can choose to transfer the commuted value to a tax-sheltered plan such as an RRSP or RRIF.

Death after the pension begins
In this case you can choose to receive an ongoing pension that will not be less than 60 – 66.6% of the pension paid to your spouse, based on provincial legislation.