In June Krista, Michael Samotis and Pina Kitagawa attended STEP Canada’s 17th Annual National Conference. The Society of Trust and Estate Practitioners (STEP) is the leading international organization for trust and estate professionals and this conference provided us with valuable up to date information on a number of topics. One of the items covered was treatment of registered assets on death including RRSPs (and RRIFs), RDSPs, RESps, TFSAs and Locked In accounts.
RRSPs, being our old retirement standard, we are a little more familiar with how to deal with and make the most out of these assets. In Ontario, we are able to address the disposition of them outside of a Will (unlike Quebec which must include a provision in their Will). Identifying a beneficiary, ensures these assets pass directly to the individual probate free with taxes being dealt with through the estate. If the beneficiary is your spouse they can receive a tax free rollover.
New to the game are TFSAs. One might be inclined to treat them in the same manner as RRSPs but they are very different. Amongst other characteristics, differences are that contributions are not tax deductible and withdrawals are tax free. However, similar to the RRSP, assets do grow tax free. With the latest budget increasing annual contribution room to $10,000 from $5,500 TFSAs will take on a more significant presence in our investment toolbox. With this, we will want to ensure they are handled appropriately upon our passing. You have the option of naming a successor holder and/or beneficiary on your TFSA (again, in Quebec, these are dealt with through the Will). Only a spouse can be a successor holder, this designation allows the spouse to step into the shoes of the original holder. If there is no spouse, then listing a beneficiary will keep this asset out of the estate and free from probate. Either way there is no tax on the fair market value of a TFSA upon death.
Now we move on to accounts that are held/opened for the benefit of someone else, RESPs or Registered Education Savings Plans. So, what can happen to an RESP if the account holder dies? It could potentially flow to the individual’s estate, be charged probate and get distributed in line with their will, thus not used for its original purpose (education of listed beneficiaries). To protect against this you could have co-subscribers listed on the account, or a successor subscriber named on the account or in your Will. There are considerations for each of these options so ensure you discuss these with your advisor.
Finally, RDSPs or Registered Disability Savings Plans. These are new vehicles which can receive individual contributions and grants from the government for the benefit of a disabled individual (yourself, or a beneficiary). If the beneficiary dies, this account is no longer viable. There may be some pay back of grants to the government and the remainder is distributed via the estate of the beneficiary. If the account holder passes away, unlike the RESP this is not the asset of the account holder and as such the plan may continue but a new holder must be identified.
With all of these new vehicles comes opportunities for savings – for ourselves, our children and for those for whom we want to protect some quality of life – be them family or not. Let’s not forget however, that these are unique vehicles that require special attention. Your advisors can help you to ensure your registered accounts are distributed most effectively for your situation. Probate is not always something to be avoided, in some cases having the assets distributed to the estate is the best way to ensure fair distribution in line with your wishes while minimizing complexity. Just like anything important to us they need to be protected and planned for – please ensure you give them special consideration and speak with your advisor if you need help.