Choosing RRSP Beneficiary

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) April 4, 2011 -- The money in your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) can be a big part of your overall net worth, so pay special care to what would happen to these assets in the event of your death.

Generally, the value of an RRSP or RRIF at the date of death is included in the deceased’s income tax return for the year of death. However, there are advantages to designating certain beneficiaries.

You can save on estate taxes and roll over funds tax-efficiently to certain people:

• Your RRSP or RRIF may be rolled over into your spouse’s registered plan on a taxdeferred basis.
• The proceeds can be given tax-free to financially dependent minor children or grandchildren, and used to purchase an annuity to provide them with income until age 18.
• For dependent children or grandchildren over the age of 18, whose prior year’s income was below the basic exemption — $9,600 in 2008 — a gift from your RRSP or RRIF would be taxed in their hands.
• Finally, if you have a dependent child or grandchild of any age who is mentally or physically impaired, you can make a tax-free transfer into his or her RRSP/RRIF or use it to purchase an annuity

Keep in mind, you can name anyone as a beneficiary; however, the RRSP/RRIF first gets taxed as income to your estate. You might leave it to charity so donation tax credits help offset the tax due.

Tax savings for your estate
After your death, your tax-advantaged RRSP or RRIF beneficiary may opt to cash out your registered funds and apply them to your estate before rolling over the rest. This is known as a “refund of premiums” and can be helpful from a tax point of view. Suppose you had substantial tax credits and deductions that offset ordinary income for the year of death. Your spouse could have part of the RRSP cashed and taxed on your final return, for the tax benefit, and roll the rest into his or her plan.

How to name a beneficiary

You may name a beneficiary in the RRSP/RRIF documents. Alternatively, you could designate a beneficiary in your will. Don’t do both. The in-plan designation is easier to change and not subject to automatic revocation by marriage or a new will. Quebec residents must indicate if a spousal beneficiary designation is revocable, and some plans require this designation to be made in a will.

Dealing with changes
Be sure to change your designation if your marriage breaks up or the beneficiary dies. And when converting your RRSP to a RRIF, be sure to designate a beneficiary, even if it will be the same recipient. Legally, the RRIF is a new plan. Professional advice can help you take full advantage of tax-saving strategies and ensure your wishes will be met.

This information was brought to you by Manulife Securities. Brayley Winton Financial Services is a distributor of your variety of funds. For more information on investment planning and RRSP benefits visit http://braleyfinancial.ca/PDF/planing_ahead.pdf

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