Dave and Amy live in Moncton, New Brunswick. Dave is celebrating his 71st birthday this year. He has held on to his Registered Retirement Savings Plan (RRSP), optimizing the tax-sheltered benefits of doing so. He named his wife Amy as beneficiary of that plan. Dave wants to convert his RRSP to a Registered Retirement Income Fund (RRIF). He wants to ensure that Amy gets the balance of his plan should he predecease her. Dave and Amy are comfortable with the investment mix and want to continue with it. They think that all that they need to do is complete a form converting Dave’s RRSP to a RRIF with the same financial institution and figure out how much they need each month to help fund their lifestyle. Amy will automatically receive the payment stream when Sam dies. Is this right?
Let’s break this down.
Amy does not automatically continue to be the beneficiary of the RRIF. If Dave doesn’t name Amy as the beneficiary of his RRIF, then when he dies, the balance is commuted and paid to his estate. Not what Dave or Amy want.
Dave needs to make this specific designation either with the financial institution or in his will. When Dave makes this designation of Amy as the sole beneficiary of his RRIF, then on death, the RRIF is commuted. The underlying investments are sold, and the balance is paid to her.
If Amy wants to have a RRIF, then she needs to transfer the designated amount to a RRIF in her name. She can elect to rollover Dave’s RRIF to her own RRIF and tax shelter the value of Dave’s plan immediately before he died. The payment stream would be recalculated using her age.
If Dave had intended to preserve both the investment structure and the payment stream of his RRIF for Amy’s benefit, then he should name her as successor annuitant of his RRIF, either in the plan document with the financial institution or specifically in his will. That way, Amy would simply take over the RRIF without any additional paperwork and continue to receive the payments as originally structured.
The underlying investments would not have to be sold, avoiding any charges and triggering any losses if the market value was down when Dave died. Amy would not have to deal with any extra reporting slips covering income or changes in value between the time Dave died and she took over the plan. The transfer would be seamless.
This is an easy detail to miss, but it makes a huge difference to Amy. It only takes a few minutes to set-up and the peace of mind for Both Dave and Amy is clear and obvious.
If you would like to talk about succession planning for your own RRIF, please feel free to reach out to me for a free chat here: FREE 15-MINUTES
With Gratitude,
KB.
THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.