What happens to your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) when you pass away?
When you have a surviving spouse named as beneficiary these registered assets are transferred to him/her without tax liability.
Where there is no surviving spouse, up to half of your registered assets could go to income tax.
By making a charitable gift of your RRSP or RRIF, the full amount goes to the cause and your estate receives tax credits.
There are two ways to gift your registered plan: through your Will or by naming the charity as beneficiary.
Bequest by
your Will
Name your estate as the beneficiary on your RRSP or RRIF and make a bequest to the charity in your Will.
The biggest advantage of this method is that it helps to ensure that the assets are distributed according to your wishes.
However, it also inflates the value of your estate, which may increase executor and probate fees.
Direct
designation
Name your favourite charity as beneficiary on your RRSP or RRIF.
Advantages of this method are that the assets bypass your estate and are paid directly to your named charities, avoiding probate.
Using this method, charities have no involvement in your estate and receive their gift in a timely fashion.
With the recent government rule changes the tax credit is now available for gifts of RRSP and RRIF proceeds to charities that are made under a direct designation under an RRSP or RRIF. As a result, the credit in these circumstances will be available in the year of death or in the preceding year.
A good general rule is to leave non-taxable assets to your family members and leave your taxable assets to charities.
Remember to always consult your advisor before taking any action.
Stuart Kirk is a Retirement Planning Specialist with Precision Wealth Management Inc.
The opinions expressed are those of the author and may not necessarily reflect those of Precision Wealth Management Ltd.
For comments or questions Stuart can be reached at stuart@precisionwealth.ca or 250-954-0247.