Dear Expert:
My father passed away in October and now we are having a problem with regard to his RRSP. My understanding is that the portion designated for my mother can easily be rolled over into her own RRSP. However, I, being his daughter and named to the other half of this entitlement, will have to pay taxes, even if I plan on just using this as my RRSP contribution. The value of my entitlement is about $22,000, so how much in taxes do I have to pay? (I live in Ontario.) Our only other option, according to the financial institution that holds his RRSP, is to get my dad's will probated since it states that all his assets are to be allocated to his estate (which is basically my mother). But my understanding is this could be very costly, is that true? Expert Answer:
The beneficiary-designated value of the funds passing to your mother passes tax-free and probate-free to her RRSP or RRIF. The $22,000 for yourself will pass to you tax-free (to you, not your RRSP) and probate-free for the estate, as the amount was part of a beneficiary designation.
However, since the amount is not being paid to a spouse, the estate will be required to face a tax bill on the $22,000 amount being paid to you. Therefore, the amount of tax paid is a function of the province of taxation for the estate and the total income taxable in your father's final deceased return (this would include all his income up to the date of death, plus the $22,000 of RRSP funds being paid to you). The estate would pay the tax out of other assets such as portfolio assets.
If you have personal RRSP contribution room, you may then contribute an appropriate amount of the $22,000 to your RRSP and you would get the tax deduction at your personal tax rate.
Having the estate probated may not be very expensive since the cost of legal fees and probate (estate administration tax in Ontario) is based on the size of the estate. However the probating of the estate may be meaningless since the RRSP designation of beneficiary may override the will and still direct the $22,000 to you and not your father's spouse and so the estate could still face the tax bill.
No statement in this article should be construed as a recommendation to buy or sell securities or to provide investment advice or individual financial planning. Morningstar Canada does not provide specific portfolio advice and recommends the use of a qualified financial planner when appropriate.
To find out how much an RRSP contribution may save you, try Morningstar's RRSP Calculator.
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No statement in this article should be construed as a recommendation to buy or sell securities or to provide investment advice or individual financial planning. Morningstar Canada does not provide specific portfolio advice and recommends the use of a qualified financial planner when appropriate.
