As much as we dislike to consider the end of a loved one’s life there are some things to be thought of which have tax implications. It is not the intention of this article to out line all the ins and outs of filing the final tax return, we recommend discussing this with your Padgett Business Services representative and perhaps an Estate tax lawyer, however there are a few investment issues which should be considered as part of the estate wrap up.
Amounts received as a refund of premiums can be transferred directly or indirectly to your RRSP, or a RRIF, or to buy yourself an eligible annuity if you were a qualified beneficiary of the deceased annuitant.
If you were a financially dependent child or grandchild of the deceased annuitant, you may be able to transfer the amount even if the deceased annuitant had a spouse or common-law partner at the time of death.
To transfer a refund of premiums to an RRSP, the qualified beneficiary must be 71 years old or younger at the end of the year the transfer is made. The transfer or purchase has to be completed in the year the refund of premiums is received or within 60 days after the end of the year.
Under proposed changes, effective July 1, 2011, you may also be allowed to rollover the proceeds to a registered disability savings plan of a financially dependent infirm child or grandchild. For deaths occurring after March 3, 2010, the existing RRSP rollover rules will be extended to allow a rollover of a deceased individual’s RRSP proceeds to the registered disability savings plan (RDSP) of the deceased individual’s financially dependent infirm child or grandchild. These rules will also apply for amounts transferred to an RDSP from registered retirement income fund (RRIF) proceeds and certain lump-sum amounts paid from registered pension plans (RPP).
It is important to note that in order to be eligible, the contribution to an RDSP can only be made after June 30, 2011, and, where the death of the annuitant occurs after 2007 and before 2011, the contribution must be made before 2012: individuals will have six months in which to make the contribution to an RDSP.
If you were financially dependent, but not because of a mental or physical impairment, the funds can only be transferred to a term annuity.
These transfers can be done without incurring taxation and so should be considered before cashing out the RRSP or RRIF upon the death of the annuitant.