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RRIF
or RRSP Insurance
If a client dies with RRIF
or RRSP holdings and the client does not have a spouse to
whom the assets can be rolled over, or dependent child or
grandchild, then the full amount of that RRIF or RRSP will
be taxable income in the year of death.
Often, if the client wished
to pass that money on to a beneficiary, the client would purchase
life insurance in an amount equal to the potential taxes payable.
The insurance would be used to pay the tax and the assets
would pass in whole to the intended beneficiary. The government
would get its tax dollars and the beneficiary would get the
asset.
Under the new charitable giving
rules this application of life insurance can be taken one
step further. A client could buy life insurance coverage equal
to the value of the RRIF or RRSP and leave that insurance
benefit to a favourite charity via the client's will. Upon
the client's death the life policy will be paid to the estate
of the deceased, the estate will transfer the proceeds to
the charity, and the charity will issue a tax receipt to the
estate. The end result is that the tax credit available as
a result of the charitable donation will offset the tax payable
due to deemed disposition on the RRIF or the RRSP. The client
avoids the payment of taxes on the RRIF or RRSP at death,
and will have made sure that the beneficiary takes the full
amount of the asset, while the charity receives a sizable
donation.
Summary
The changes to the charitable
giving rules are perhaps the most significant to this area
of tax planning that have been seen in a decade. They have
arisen from a desire for the government to shift the funding
burden fro itself to the general public. Both charities and
individual and corporate clients stand to gain tremendously
from the new rules.
For
further advanced Estate Planning such as the above consult
a Financial Planner at Ogden
Financial Planners Ltd.
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